🧮 How to Build Your First Budget: Step-by-Step Guide to Gaining Financial Clarity
Now, let’s roll up our sleeves and build your first budget—step by step.
This guide is designed to help you gain perspective, reduce stress, and take control of your money using a customizable spreadsheet. Whether you’re using Excel, Google Sheets, or your own system, these steps are universal.
✅ Step 1: List Your Needs & Obligations
Start by listing all the expenses you must pay each month—don’t worry about the amounts yet. These are your survival expenses and financial obligations. Getting them down first ensures your essentials are covered before you plan for savings or fun spending.
🔍 Examples of Needs & Obligations:
- Gas for your car
- Groceries
- Phone bill
- Car insurance
- Electricity
- Trash service
- Other utilities
- Rent or mortgage
- Car payment
- Internet
- Credit card payments
- Any other money owed
💡 Tip: If it’s essential for survival or something you owe, it belongs here.
Once you’ve listed everything, go back and add the dollar amounts. This gives you a clear picture of how much you’re spending on necessities.
💵 Step 2: Find Your Net Income
Net income is your take-home pay—the money you actually have available to spend. You can use your most recent paycheck or average past income to estimate this.
Don’t worry about gross pay or deductions just yet. We’ll get there once budgeting becomes part of your routine.
📊 Step 3: Calculate the Percentage Spent on Needs
Now let’s do a little math:
- Divide your total needs & obligations by your net income
- Multiply by 100
This gives you the percentage of income spent on essentials.
If you’re using the spreadsheet, plug this into the goals page. I like to leave a 1% margin, so subtract your needs percentage from 99%. The remainder is what’s available for discretionary spending and savings.
For now, leave the savings goal blank. We’re just gaining perspective.
🎯 Step 4: List Your Discretionary Spending
This category is where most budgets go off the rails—so let’s take our time.
Start by listing everything you spend money on regularly that isn’t essential. Don’t worry about amounts yet.
💡 Examples of Discretionary Spending:
- Website platforms
- Netflix
- YouTube Premium
- Kindle books
- Subscriptions
- Dutch Bros (if it’s a regular treat)
- Eating out
- Free spending (one-off purchases)
Focus on recurring expenses first. You can always add more later.
Once your list is solid, add the dollar amounts. Subscriptions are easy—they’re usually fixed. If you’re using this spreadsheet, it will automatically calculate your free spending category as you go.
📈 Step 5: Calculate Your Discretionary Percentage
Same math as before:
- Divide your total discretionary spending by your net income
- Multiply by 100
Now compare this percentage to the one from Step 3.
- If it’s higher, you’ll need to cut back.
- If it’s lower, the difference becomes your savings goal.
This isn’t about perfection—it’s about awareness. You’re learning where your money goes.
If your discretionary spending matches your available percentage, check your free spending category. That leftover cash can be redirected to savings.
💰 Step 6: Set Your Savings Goal
Decide how much of your free spending you want to save. Add that amount to the savings category in your spreadsheet.
Once you’ve done that:
- Subtract your savings percentage from your discretionary percentage
- Update your goals page accordingly
You’ll see your free spending shrink—and your savings grow.
This is where discipline kicks in. Can you get used to having money and not spending it?
🔍 Step 7: Review Your Budget
Take a moment to review everything:
- Your net income
- Your needs and obligations
- Your discretionary spending
- Your savings goal
The more time you spend with your budget, the more in tune you’ll be with your finances. Remember: budgets are flexible. They evolve with you.
📅 Step 8: Plan for Next Month
Here’s a pro tip most people miss:
Don’t wait until the last day of the month to plan the next one.
Start at least two weeks early. That way, you’re not scrambling—you’re prepared.
Since you’ve already built your first budget:
- Copy it for next month
- Tweak what’s changed
- You’re good to go
Planning ahead reduces stress and surprises. It’s one of the best habits you can build.
🌱 Budgeting Can Change Your Life—Here’s Why
Budgeting isn’t just for finance nerds or spreadsheet lovers. It’s for everybody—every day.
The more you engage with your budget, the easier it becomes. What once felt like a chore will start to feel like second nature. You’ll begin to anticipate your spending, plan with confidence, and make decisions that align with your goals.
But here’s the real magic:
Budgeting is a gateway habit. It builds discipline, sharpens your awareness, and opens the door to other positive changes. Once you start paying attention to your money, you’ll notice how it connects to your time, your energy, your relationships, and your dreams.It’s not just about dollars and cents. It’s about clarity. Control. Freedom.
Budgeting changed my life.
It helped me see the bigger picture—and take action.So whether you’re just starting out or refining your system, remember: this is a journey. One step at a time. One month at a time. One decision at a time.
You’ve got this. Start planning your journey.
-Opinion by Kit A.
-Edited with AI tools for clarity and flow