An 8-Step Budgeting Process That Simply Works

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I love budgets. Truly.

It’s not because I like staring at spreadsheets all day. It’s because I really enjoy the FREEDOM and CONTROL I get from knowing where every dollar is going before we spend them.

I can easily say that, without our budget, we would NOT have:

Over the past 10+ years of budgeting, I’ve coaching dozens of people, written HUNDREDS of articles on how to manage your money, and help thousands of people get on a budget. I want to share with you exactly how to make a budget that WORKS, so you can enjoy your OWN financial freedom.

Here is the 8-step budgeting process that simply works

  • Step 1: START WITH WHY
    • You can only stick to a budget you ACTUALLY CARE ABOUT.  Discover your WHY!
  • Step 2: S.M.A.R.T. GOALS
    • Your budget is the GPS and your SMART Goals are the destination!
    • Uncover where your money went so you can build a plan to tell it where to go instead!
    • Put together a Budget based on REALITY, not wishful thinking.
  • Step 5: CUT EXPENSES
    • Learn how to lower your expenses without hating your life!
    • You’re already spending the money, might as well find ways to save on everything in your budget!
    • Start building better money habits by committing to track your spending every day.
    • It takes two to stick to a family budget. Regular budget meetings are REQUIRED for your budget to work.
How To Budget When You Have No Clue Where To Start


Fact – You will NEVER stick to a budget if you don’t care.

Before we jump into the numbers, you need to know WHY you are here. Why are you reading a guide on budgeting?

If you’re like I was, you are in a place in life that makes you ask the question:

“Where in the world is all my money going? And what can I do about it?”

Back in 2008, I got engaged to my (now) wife, and realized I had NO idea where my money was going. I also realized that if I didn’t get my act together, I’d be broke as a joke in no time flat!

That was the spark that got me interested in budgeting REAL QUICK, and helped me get clear focus on WHY I needed a money plan.

To get started, I want you to write down the below sentence and fill in the blanks:


Back when I got engaged, mine look something like this:

“I need to get on a budget because I don’t know where my money is going, and I want to provide financial stability for my family.”

Your turn! Write it down, print it out, frame it, and hang it up!

This is your ultimate WHY and will be what drives you to stick to your plan.


The next step is to write down some specific GOALS you want to achieve! Pull out your “SMART Goals Worksheet” from the Budget Binder (or a blank piece of paper) and start thinking about those BIG financial goals you want to achieve.

Things like:

  • Pay off Credit Cards
  • Pay off Student Loans
  • Save House Down Payment
  • Pay Off Mortgage
  • MAX Out Roth IRA
  • Quit Job!


Think of your financial life as a roadmap. Your budget is the GPS, but if you don’t have a destination, what good are the directions?

You need to put a pin on the map, and define EXACTLY where it is you want to be.

When you create a SMART goal, you are not only defining the destination, you are saying exactly how far it is and how long it will take to get there.

So give yourself something to be excited about on this financial journey, and let’s get started with your SMART financial goals.


S.M.A.R.T. goals have been around since the 80’s, and are the BEST way to create a goal that matters, and that you can actually complete. Here is what the acronym stands for:

S – Specific. You need to create a goal that can be completed. Saying “I want to retire someday” is not a specific goal and will get you nowhere. Saying “I want to retire in 10 years” is specific.

M – Measurable. You need a goal that can be measured. Financial goals are easy, either you saved enough money to hit the goal, or you didn’t. Something like “pay off $12,000 in debt” gives you a measurable goal to work toward.

A – Attainable. This one is should be obvious, but don’t go an create a goal like “make a billion dollars.” You want something you CAN ACTUALLY ACHIEVE. Something like “Buy a house”, or “get a new car.”

R – Relevant. Your Goals need to add value to your life. Imagine what life will be like when you hit that Goal. Does it FIRE YOU UP? Will life be BETTER after achieving this goal? Your answer should be HECK YES! for the Goal to be “relevant”

T – Time-Bound. Your goal is WORTHLESS unless you have a timeline attached. Words like “Someday” and “Eventually” do not work. Say something like “I want to pay off my $12,000 car note in 12 months.” This is critical to creating a goal and implementing it in your monthly budget.

It’s time to create your very own SMART goals!

If you have the Budget Binder, pull out your SMART Goals Worksheet and create some goals that MATTER to you! (or use a blank piece of paper)

SMART Goals Worksheet


These goals are the Destination on your path to Financial Freedom, and part of the reason WHY you are getting your finances in order. They should be part of your core motivation for sticking to your budget month-in and month-out.

The best part about building your budget and setting goals that MATTER, is that you WILL hit them. If you create a budget before each month begins, and create goals that you TRULY care about, you will find a way to make the numbers work.


Now that you’ve written down your Ultimate WHY and SMART Goals, you’ll want to walk through the “Past Spending” exercise to see where all your money has been going.

This can be scary.

I know.

One of the hardest parts of money coaching is having my clients go through their past spending. It’s holding up a financial mirror to their lives, and shows them where ALL the money has been disappearing to.

This can be emotional, especially if you are working through things like financial infidelity, or dealing with a shopping addiction.

But the only way to create a budget that WORKS, is to find out what your current spending habits are so you can change them.

Follow this step-by-step process below. Trust me, it will change your life!


Print out your last 3 months of bank and credit card statements (FOR ALL ACCOUNTS!).

You want to be able to see ALL your spending over the past 3 months.


Think of this as color coding your spending (Even better! Create a color for each category and highlight).

It’s a great exercise to show where your money goes, and it might surprise you!

Past Spending Tracker

If you have our Budget Binder, simply grab your “Past Spending Tracker” worksheet and write in your spending categories at the top of the page. (you can also use a blank sheet of paper)

You can simply use the categories I’ve provided below, or come up with your own.

Category Examples:

  • Housing
  • Food
  • Auto/Transportation
  • Monthly Bills
  • Debt
  • Other Stuff 


This is where the rubber meets the road.

At the bottom of each column, add up each transaction in that category, and write in the “TOTAL” at the bottom.

This is the EXACT amount you have spent within each category over the past 3 months.

Now divide that number by 3, and you will see your average monthly spending.


This might be the FIRST TIME you have ever seen exactly where your money is going. Take some time to digest it, and realize you now have something to work with going forward.

You (and your spouse) will want to talk about what surprised you the most and where you think you can find the quickest money wins when you build your budget.

When I first did this exercise back in 2007, I realized I had spent over $500 on food (as a single guy!), almost all of it AT THE MALL where I worked! I was honestly horrified, as I had no idea I was doing that. But once I saw that, I would never forget it.

DO NOT get discouraged by the results. All we’re doing here is putting your wallet in the mirror so you can see where your money has been going.

You can’t change the past, but now you are armed with the information to change your financial future.



You have officially solved the mystery of “where has all my money gone?”

It’s time to plug in the numbers and build a budget that WORKS!

Budget Template Pic

If you haven’t already, grab your FREE Budget Template now!


Your income is the foundation of your budget, and dictates what you can and cannot spend money on.

Start with your NET INCOME from your job(s) (after taxes, medical and 401k), then add in monthly interest and dividends and any other side jobs or income you have.

The goal here is to accurately reflect how much money hits your bank account each month.

Add up the total income and put that at the top of your Budget under “Total Budgeted Income”. You now have the starting number for your budget!


Jobs: $5,200

Other Income: $150

TOTAL: $5,350


Now that you have a number to work from (total income), it’s time to write down ALL of your expenses.

Use your numbers from the Past Spending exercise to start!

This may sound simple, but your average monthly spending from your “Past Spending Tracker” exercise is your starter budget.

This is important, because a budget not based on REALITY will fail 100% of the time!

So if you typically spend $1,000 on Groceries, don’t budget $500.

Simply bring over the numbers from your past spending tracker.

Then you will need to split out your expenses into more detail.


The first section of your expenses is the monthly bills. These are your recurring monthly expenses and can include:

  • Mortgage/Rent
  • Utilities
  • Internet
  • Subscriptions
  • Car Insurance
  • Cell Phone
  • Credit Card Payments
  • Student Loan Payments 

Inputting these should be fairly straightforward.

Budget Hack: When you create these categories, put the day of the month the bill is DUE after the name. Then put them in order of when they are due.

Your Bills section should look something like this:

  • Mortgage/Rent (1st)
  • Electric (1st)
  • Car Payment (1st)
  • Natural Gas (8th)
  • Water/Sewer (12th)
  • Garbage (15th)
  • Internet (22nd)
  • Car Insurance (25th)
  • Cell Phone (26th)
  • Credit Card 1 (27th) 

As you can see, this gives you a snapshot of WHEN your bills are do, and lets you know how much you need during the month.

For the majority of people who are paid twice a month, you can use this information to help balance each half of the month.

For example, in the budget above, you can see the first half of the month is where a majority of the bills land. But if you don’t get paid again until the 15th, you might find yourself borrowing just to make it until your next paycheck. Even better, check out my guide on the Paycheck Budgeting Method.

Money Tip: Did you know you can call the billing department of these companies and have them CHANGE you due date? If you find yourself too heavy on one half of the month, call and move the due dates around to create a more balanced budget.

Once you input all your bills, it’s time to put in your daily spending.


This section of the budget is where you put all of your discretionary spending. Here are a few examples:

  • Groceries
  • Gas
  • Restaurants
  • Entertainment
  • Spending Cash
  • Pets
  • Household
  • Misc

These are the day-to-day spending categories that are honestly the TOUGHEST to budget for.

BUT, this section is where you have the MOST CONTROL to affect the outcome of your budget.

I personally put these in order from highest to lowest amount, just to be able to see where most of your money is going.


The last section of your budget is the Savings Buckets.

This is where you save money each month toward an infrequent expense.

These buckets are for things like:

  • Christmas
  • Birthdays
  • Anniversary
  • Beauty
  • Vacation
  • College Fund
  • Car Maintenance
  • Computer/Phone Replacement 

The formula for how much to budget is pretty simple:

Total cost / number of months = monthly bucket amount

For example, if you are planning on taking a Hawaiian vacation in 1 year, you have 12 months to save. If the vacation will cost $4,000, you need to divide $4,000 by 12 months.

Doing the math, you will need to budget $334 per month into you “Vacation” bucket.

I recommend creating a separate savings account for each category so they are easier to track. I personally use CapitalOne360, which allows you to open as many savings accounts as you want (and name them). Then I transfer money to each account to “fill the bucket.”

CapitalOne Savings Accounts
Our Savings Buckets…

Note: CapitalOne is currently offering a $25 bonus for signing up with THIS LINK and depositing $250.

One of the best ways to plan your savings buckets is to open up a calendar and think about expenses that will be coming up in the next 12 months.

Then use the formula above to save for those expenses so when the time comes, the money is already there.



Your budget is almost complete! The last thing to do is assign ANY EXTRA FUNDS to your SMART Goals.


Using your SMART goals from earlier, it’s time to add them to your monthly budget. Make sure they are in order of importance, so your money goes to the most important goals first!

The best way to do this is to take your goal and divide it into monthly contributions. Here’s the formula:

Goal Total Amount / Months To Get There = Monthly Contribution.

Here’s a quick example of what that looks like:

Mike wants to pay off his $12,000 in credit card debt in the next 18 months. $12,000 divided by 18 = $667 per month.

Using this goal, Mike will need to set aside $667 per month to pay toward his $12,000 in debt to achieve his SMART goal.

So take your goals that you wrote down and break them down into monthly categories. Insert them into your monthly budget until your leftover budgeted amount reaches ZERO.

For further reading on where to put your money, check out my Personal Finance 101 post that details EXACTLY how I recommend managing your money.


Now that you have your totals on paper, are you spending more than you make?

That’s OK!

Remember, this budget is a PLAN for your money, and it can be changed!

It may be painful, but there may be some things on your budget you simply cannot pay until you are able to get your income up. This is where you need to be very clear on what your true “needs” are, and everything else.

Here are my recommended guidelines on what NEEDS to be paid:

  • Mortgage/Rent
  • Food
  • Utilities (not including internet)
  • Transportation 

Everything else in your budget is negotiable. You may need to cut out things like cable, cell phone plan, restaurants, entertainment, and any other discretionary spending.

Get your budget to a place where your Income is more than you Expenses so you have a plan that doesn’t put your further in debt!

Further reading: Help, I Can’t Even Put Food On The Table


Here’s an example of what your budget could look like.

  Before After
Paychecks $5,200 $5,200
Other Income $150 $150
Total Income $5,350 $5,350
Total Expenses $5,315 $5,065
Mortgage/Rent (1st) $1,500 $1,500
Electric (1st) $150 $150
Car Payment (1st) $250 $250
Natural Gas (8th) $100 $100
Water/Sewer (12th) $60 $60
Garbage (15th) $45 $45
Internet (22nd) $60 $60
Car Insurance (25th) $150 $150
Cell Phone (26th) $100 $100
Credit Card 1 (27th) $150 $150
Groceries $800 $800
Gas $250 $250
Restaurants $400 $300
Entertainment $200 $150
Spending Cash $200 $200
Pets $100 $100
Household $100 $100
Misc $400 $300
Savings Buckets    
Christmas $100 $100
Birthdays $50 $50
Car Maintenance $50 $50
Vacation $100 $100
Total Expenses $5,315 $5,065

As you can see above, a few simple adjustments to the budget can take you from not saving ANYTHING, so saving almost $300 per month! Read below to find out how to do this!


Now that you have your total budget on paper, how does it look?

If you want to go throw up…..totally normal, it happens to most of us!

But now that you have it on paper, you can start working toward a budget you can be proud of!

Before you change ANYTHING, I recommend going through the below “Priorities” exercise, and it will help clarify EXACTLY where to change your budget.


If you want to ACTUALLY stick to your budget, it can’t be something that you hate.

Your budget should give you a sense of FREEDOM instead.

  • Freedom to spend money where you want
  • Freedom to work HARD toward your BIG goals
  • Freedom to cut out ANYTHING that gets in the way 

To do this, you need to write down your life’s priorities, in order.

Mine look something like this:

  1. God
  2. Wife
  3. Kids
  4. Family
  5. Friends
  6. Church
  7. Other Stuff 

Now, this is definitely not an all-inclusive list of priorities, but it does lay the basic foundation of how I would like to manage my life.

Back when I first got on a budget, I realized that some of my spending habits were taking away from what was truly important in my life.

For example:

I was spending over $500 per month on food (as a single dude). This was not only unhealthy (majority of it was mall food), it was taking away from saving for my upcoming wedding (Wife), and everything else.

I cut that spending down significantly and started saving MUCH quicker. I had a new found purpose for planning my meals more carefully, and actually ENJOYED my life more in the process.

I recommend coming up with a list of things that are MOST important to you and writing them down.

Then simply compare that list with EACH line item in your budget.

Are you spending in a way that reflects your priorities?

The answer to this question will help you start cutting out the waste in your budget, helping you lower your expenses and increase your joy at the same time!

Note: Don’t go too crazy! Some of your poor spending habits will take time to break, so I only recommend cutting down your “not important” categories by 10%-20% at first. Get used to the budget first, and THEN cut it down more (or eliminate it).


Now that you’ve cut down the waste, it’s time to look at ways to save on the things you WILL be spending on.

There are also a few tools I recommend to make sure we are making the most of our daily spending.

Rakuten – We shop online a lot, so we use Rakuten to help us find coupons, AND it gives us cash back at most stores. See my full review HERE

eMeals – We’ve been using eMeals for a few months to help us be more creative with our meal planning. It’s been amazing, and somehow is still saving us money too. You can give it a 14-day FREE trial HERE

Ask Trim – Too many subscriptions? Trim is a service that helps you find and eliminate unwanted subscriptions. They can also help negotiate your cable and phone bills, and only charge a percentage of your savings! Sign up for a FREE account HERE

There are tons more ways to save, check out my post on Ways To Save Big $ and get started!


Congratulations, you now have a Budget that is MADE FOR YOU!

But remember, the budget doesn’t work unless you ACTUALLY STICK TO IT!

If you have the Budget Binder, make MULTIPLE COPIES of your “Daily Expenses Tracker“, keep your receipts, and start tracking your expenses every day. (or use a blank piece of paper)

If you have our FREE Google Sheets budget template, use the “Transactions” tab to input all of your spending.

The goal here is to start building better money habits, and the first one is simply committing to track your spending daily.

For your daily tracking, simply put in the date, where, amount, and category of the transaction. For the printed spending tracker, make sure you keep your balance up to date.

Money Tip: If you don’t remember ANYTHING from this guide, please remember this. TRACK. EVERY. PENNY. Do this for 30 days straight, and it will start to change the way to THINK about money. Building this habit is the #1 way to a successful budget, DO NOT SKIP THIS.


This is the secret sauce to keeping you on track, because life can get crazy.

Which is why you need to schedule in a budget meeting, every week, for the first 3 months of your new budget. I recommend doing this on Sunday evening, before the new week begins.

If you’re married, this is a weekly sit down with your spouse.

If you’re single this meeting can be with yourself or a budgeting partner.

The key is that you review your budget to make sure you are on track, and make any necessary changes before the next week.


Set A Timer. Don’t talk about budgeting for hours on end (unless it’s with me!). Budget meetings can feel overwhelming (usually one spouse or the other is anxious about it). So keep it short and to the point, no more than 30-45 minutes.

Limit Distractions. Talking about money can be stressful, but so can hyper kids, a messy house and lots of noise! Make sure the kids are in bed and the house is picked up so you can FOCUS.

Compromise! You will not 100% agree with your spouse on the budget….and that’s OK. Budgeting (just like marriage) is give and take, and you will need to practice compromising on a few line items. Be willing to sacrifice your spending money for their spa day, and vice versa. Remember, you are a TEAM!

Keep It Positive. Don’t hammer on the budgeting failures, but instead focus on the wins. This is a learning process, and when you are building better habits, you want that positive reinforcement to keep you going. Stay positive and adjust as necessary.


Well done! You’ve completed the first step to taking back control of your money.

You have the power of knowledge through tracking your spending, the power of a plan with your new budget, and the power of Priority Based Spending to continue spending on what you enjoy and saving money at the same time!

Now it’s time to execute on the plan you’ve put together.

Here are 3 budgeting tips that I’ve learned to help you STAY ON TRACK and hit your goals!


Your first 3 months of budgeting may feel like failure. Life has a way of messing up our plans, so expect your budget to fail. You can’t account for everything, but don’t stop budgeting just because you blow it.

It takes more than 1 month to get into the groove, so keep punching in your spending and it will become a habit in no time!


PLEASE do not stress if what you planned at the beginning of the month looks drastically different at the end.

Life happens.

Which means when something unexpected happens, you can adjust on the fly and be on your way.

You overspent on groceries? No biggie, just backfill with some funds from your clothing budget, and forego the new sweater. DONE!

The definition of “sticking to your budget” is planning your spending before the month begins, making ALL money decisions based on that plan and not overspending.

It’s not about predicting the future, it’s about keeping your spending in line with your goals.


Now that you’ve put your budget on paper, it’s time to put in the work!

If you downloaded the Budget Template, you’ll now get (at least) a weekly email from me, keeping you on track with budgeting tips, ways to save money, and step by step guides on getting out of debt and building REAL wealth.

Stay in touch, and feel free to drop me a note on Instagram (where I post daily).

For more budgeting tips, check out my top 7 budgeting tips for beginners.


You are now on the road to Financial Freedom. You have followed our 8-step budgeting process and taken the simple steps necessary to TAKE BACK CONTROL of your money, and set some BIG GOALS to work toward.

It’s won’t always easy. Change never is.

But as you start Building Better Money Habits, remember to enjoy the journey.

You now hold the keys to your financial future.

Where will you go from here?

Next Steps: Read through my Personal Finance 101 post on what to do with your money after you’ve created a working budget.

Jacob Wade

Jacob Wade

Jacob Wade has been a nationally-recognized personal finance expert for the past decade. He has written professionally for The Balance, The Spruce, LendingTree, Investing Answers, and other widely-followed sites. 
He’s also been a featured expert on CBS News, MSN Money, Forbes, Nasdaq, Yahoo! Finance, Go Banking Rates, and AOL Finance.

In 2018, Jacob quit his job and his family decided to sell everything (including their home) to take off on an adventure. They traveled the country in an RV for nearly 3 years, visiting over 38 states, 20+ national parks and eventually settling in the sunshine state!

25 thoughts on “An 8-Step Budgeting Process That Simply Works”

  1. a priorities list has seriously gotten us through a lot of decision making! Sometimes it’s ok to spend money on something in the name of “making a memory” (even if it otherwise seems frivolous) or give to the church even if money is tight. It all depends on your priorities! (that is of course if you are still paying all the bills! ;D )

    • Absolutely true. There are many things we sacrifice in some areas so we can spend money in others. Looking at our budget in terms of priorities makes it easy to say “no” to certain activities so we can say “yes” to the ones we really enjoy!

  2. I like the priority list. Before I ever did a budget, I did a little excersise where I wrote down all of my purchases for one whole month. Even if I spent five cents, I wrote it down. Once the month was over I reviewed my list and this helped me to prioritize what was important from what was not. I also saw where I was wasting money and was able to take that wasted money and throw it on my debt.

    • That’s a great way to get started. I will definitely be going into a process similar to that on Part 2 of this series. When we started, we had already been tracking our expenses for a few months, so we ended up looking at the totals and deciding where we wanted to keep spending our money, and where we thought we needed to cut. The decision was a little easier because we moved right away, and I got a job make $4 an hour less than before. So we ended up slashing a lot of frivolous spending out.

      Though, it’s funny, because when we moved and I was making less money, it felt like I got a raise. We stopped all spending in areas we didn’t care about, got on a meal plan, and were actually saving money as opposed to spending every dollar like before. Weird how that happens. I think I’m going to title my next post “give yourself a raise” 😉

  3. Just noticed that I didn’t see your name on your list of priorities? I used to think of others way before myself, but ended up feeling like I was always missing out. I have had to learn to be a bit more selfish in order to get the balance right. Just wondering if you are like I used to be, and could do with giving yourself a bit more priority?

  4. Jon, that’s a great observation. One thing I learned about myself is that I get joy out of serving others (not trying to sound pious). Budget-wise, I end up in the “other stuff” category. I allow myself $20 spending cash per month to blow on whatever I feel like. That has been enough for me for a few years and I have (almost) never felt like I am missing out. And as far as time goes, I love spending time with my wife, family, and friends, so I didn’t feel the need to put my myself on that list. Thanks for the comment!

  5. I agree with the priority list–it’s what helped me get started on the right track. It’s also why I’m planning a wedding even though I’m not out of debt yet–I think it’s great to make memories while you still can and not think back with a “what if”.

    • Completely agreed! I think many people who are following a plan to get out of debt get a sense of guilt when they spend money. In truth, we still have some student loan debt, but we are also planning a vacation in November. Blasphemy, I know, but I don’t feel guilty about it in the slighest, because we still have a solid plan to get out of debt soon and build wealth. But that’s another story… 🙂

  6. Budgeting priorities seem to be the everyday norm nowadays in the house. Priority list is essential. I can’t believe I lived without it for years.

    • Jai, isn’t it crazy looking back at your old financial habits and wondering how you even survived? I still don’t know what I ate in college, or how I managed to not overdraw my account every week?! It’s nice to be on the other side, but frustrating to think of the money I wasted without a clear plan. I’m excited to help others see the light and not have to make the same mistakes I did.

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