3 Steps to Create a Spending Plan (aka Budget) - No BS Investing
Posted 284 views February 16, 2022, 9:51 - Dylan in Financial Planning

3 Steps to Create a Spending Plan (aka Budget)

Do you ever feel like you’re out of control spending money each month? 

With groceries, rent, car payments, phone bills, etc., it’s so easy to overspend. And that’s not even counting other expenses like Netflix subscriptions or Amazon Prime purchases. 

Luckily, there is a way to control your spending. Create a simple, easy-to-follow spending plan. Also called a budget, a spending plan helps you track income and expenses so you reach your financial goals. 

Key Takeaways:

  • A monthly spending plan tracks how much money you make and how much money you spend each month.
  • Determine your monthly expenses and how much you currently spend per month.
  • Calculate your monthly income to determine how much you make per month.
  • Create short-term and long-term financial goals to guide your spending plan.
  • Find the right budgeting method for you and then use a budgeting app to help you implement it.
  • Look for ways to lower your expenses and increase your income to help you achieve your financial goals. 

Why Should You Create a Spending Plan?

A monthly spending plan tracks how much money you make and how much money you spend each month.

By tracking how much money goes where, you’re less likely to overspend your hard-earned dollars on monthly bills or splurges. 

A spending plan puts you ahead of the curve. According to one survey, only 47% of Americans use budgeting methods to track their spending.

But another survey also found that “those who kept a budget were more likely to know how much they spent last month and were less likely to say they had splurged on something that hindered their ability to pay bills.”

Since you’re not overspending, you can achieve short-term and long-term financial goals such as:

  • Building a 3-6 month emergency fund.
  • Contributing more to a retirement account (e.g. 401K).
  • Creating a successful investment portfolio.
  • Paying off your debt such as credit cards

Many people don’t budget because they think it takes too much time and energy. Or they think it restricts them too much. But a budget doesn’t have to mean you drastically change your life. It means you have a plan to use your money on what you value. 

Let’s dive into how you create a simple, successful spending plan of your own. 

Step 1: Determine your monthly expenses.  

Before you can control your spending, you need to know how much you’re actually spending! This also helps you identify where you can cut back per month. Rather than saving the leftovers of your paycheck, you can start by saving and use the rest for expenses.  

Start by creating a Google or Excel spreadsheet. Write down a list of your spending categories. Here are common monthly expenses to include in your spending plan:

  • Rent (or mortgage)
  • Transportation expenses (e.g. car payment)
  • Food and groceries
  • Utility bills
  • Insurance payments
  • Phone bill
  • Pet food and care
  • Childcare costs
  • Monthly subscriptions (e.g. Netflix)
  • Entertainment
  • Debt payments
  • Clothing

Since actual expenses depend on your personal situation, look through your bank statements to ensure that you’re not missing any monthly expenses. 

We then recommend organizing these expenses into four expense categories:

  • Fixed expenses: These expenses include necessary things like rent and insurance. They remain the same each month.  
  • Flexible expenses: These expenses are necessary, but the amounts fluctuate per month. Think about things like your grocery bill and utilities. 
  • Discretionary expenses: You have more control over these expenses. They include things like eating out or going to the movies with friends each month. 
  • Savings and retirement: Ensure a portion of your money is helping you improve your financial future such as through an emergency fund or investing in a Roth IRA.

Next, write down the average cost of each expense. If you have a lot of flexible or discretionary expenses, simply calculate your average spend for the past three months.  

Finally, total up the amount for all your monthly expenses. 

Many financial apps and tools can help you with this step, but we find it helpful to complete manually (at least the first time you create a spending plan). You then have a clear picture of what you’re spending (you might be surprised by the results!). 

Step 2: Calculate your monthly income. 

Now that you know how much you spend, it’s time to calculate how much you make. You want to make sure your expenses aren’t exceeding your income.

For your spending plan, your take-home income or pay is what matters. Take-home income is what you receive from your employer or client after taxes and retirement contributions. It’s your paycheck every month.  

Unless you’re paid monthly and know the amount, here’s how to determine your own take-home pay (based on when you get paid each month):

  • Bi-weekly: Simply take your two paychecks per month and add up the total to get your monthly pay.  
  • Weekly: Take your weekly paycheck amount. Multiple this amount by 52 (aka the number of weeks in a year). Divide this number by 12 to get your monthly income.
  • Fluctuating pay: Maybe you work side hustles. Or you’re a contractor whose paycheck amount changes by the month. In this case, estimate your average monthly income by adding up your paycheck from the past three months. Divide this number by three. 

In your spreadsheet, add a column for “Monthly Income.” Write down your monthly income. Compare your monthly income amount to your monthly expenses. 

Do your expenses exceed your income? If so, it’s time to reduce expenses. If not, are you putting enough away for savings and retirement? Your spending plan will help you make these decisions. 

Hint: Sign up for the Personal Finance Masterclass – Easy Guide to Better Finances course on Udemy for a complete dive into budgeting. 

Step 3: Select & Follow a Budgeting Plan. 

You know how much you spend. You know how much you make. Time to take this information and turn it into a spending plan. 


Your financial goals are what guide your spending plan. They tell you how much of your money should go towards debt, savings, etc. Set both short-term goals and long-term ones.

Short-term goals can typically be accomplished in one month to five years. Long-term financial goals are anything that will be accomplished in over five years. 

These goals are personal according to your financial situation and desired lifestyle. However, here are a few examples that can help you create goals of your own:

  • Short-term goal: Build a $1,000 emergency fund by March X, 20XX.
  • Short-term goal: Pay off my $2,000 credit card debt by April X, 20XX.
  • Long-term goal: Build my retirement savings to $90K by June X, 20XX. 
  • Long-term goal: Pay off my $150K mortgage by August X, 20XX. 

Make these goals S.M.A.R.T. to help you achieve them. Use them as your North Star for how much you want to earn, spend, save, and invest. 

For example, if you want to pay off $2,000 in credit card debt by next year, you might set a goal to reduce your monthly spending by $166. This money will go toward paying off your debt in 12 months. 


Different types of budgeting methods abound, and not all budgets are created equal. The right budget for you depends on things like how much time you want to devote to it per month, your personality, and goals. 

However, here are three of our favorite budgets. Review and decide which one is best for you: 

  • 50/30/20 Budget. If you’re looking for simplicity, this budget is an excellent way to go. Allocate 50% of your money for needs (e.g., rent), 30% for wants (e.g., eating out), and 20% for savings or paying off debt.
  • Pay-Yourself-First Budget. Allocate a specific amount from your paycheck to go towards debt and savings each month. Still prioritize paying necessary expenses like rent, but you’re free to spend the rest of your money as you wish. This method is perfect to build up your savings and get out of debt!
  • Zero-Based Budget. Income minus expenses equals zero. Every dollar you have is given a home, even for savings and debt. If you can reasonably estimate your income per month and don’t mind spending time tracking your expenses line-by-line, this method is a good option. 

Hint: Don’t feel locked into the first budgeting method you choose. Try it for a few months to get used to the system, but if it doesn’t work for you, try another method! The goal is to find a budgeting method that you’ll stick to. 


Put your budgeting method into action with a digital budgeting app or tool. 

While a Google spreadsheet is a great way to budget, a budgeting app or tool can simplify your spending plan/budget each month (especially helpful for beginners). It shows you how much money you have coming in and going out.  

Here are budgeting apps we recommend (based on different budgeting methods:

Though the process depends on the app, it’s normally simple to sync your bank and investment accounts to the app. They also offer various features such as spending charts and percentages – so you can track if you’re staying on budget. 

We recommend quickly checking your app at least once a week. Do a thorough review of your income and expenses at the end of the month. 


Optimize your budget by increasing your income and lowering your expenses. 

Lower your expenses:

Determine if you can lower your expenses each month. Then use more money from your paycheck to save, invest, or pay off more debt. 

  • Focus on reducing your housing and transportation costs first. 
  • Evaluate your monthly subscriptions such as Hulu. Cut ones you don’t need. 
  • Determine if you’re overpaying for cell phone services. 
  • Shop for cheaper auto insurance. 

Reduce expenses through the lens of what you value in life. For example, if you value traveling, reduce the amount you spend on entertainment each month. If you value your morning latte, reduce what you spend on something you value less such as shopping. 

Once you’ve taken these steps, write down your target goal for monthly expenses. Put this information in the same spreadsheet you created earlier. 

Increase your income:

Lowering your expenses can only take you so far. To truly improve your financial situation, you need to increase how much you make. Here are a few ways to do that:

  • Negotiate your salary at work to increase your full-time salary.
  • Start a side hustle such as freelancing on Upwork or selling items online.
  • Create passive income streams such as through affiliate marketing. 

Write down your target income per month. Check your budgeting app to make sure you’re meeting this goal. 

Related: How to Automate Your Finances in 3 Steps

Spending Plan Example

Below is a sample, simplified spending plan. Notice how you write down your target budget amount each month in one column. In another column, you write down what you actually spent and made. 

Unless your budgeting app helps you complete this step, we recommend creating a simple spreadsheet like this one for a high-level overview of your budget (and revisit your budget amounts each month). 

Stick to Your Spending Plan

Track and monitor your spending plan every month to help you stick to it. This doesn’t have to be difficult or turn into something you dread. 

  • Schedule a free day on your calendar for the end of the month. 
  • Set a reminder to review your budget.
  • Spend 30 minutes to one hour reviewing where your money went.
  • Adjust your budget as needed if you went over budget. 

You might not always follow your spending plan or budget perfectly (and don’t beat yourself up if you don’t!). But it should serve as helpful guardrails, protecting you from overspending and helping you achieve your financial goals. 

Want to learn more about budgeting? Take the Personal Finance Masterclass – Easy Guide to Better Finances course on Udemy. In addition to other best personal finance practices, this course teaches you how to create a complete budget and stick to it. Check out the course here

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Elisabeth O. is an MBA graduate with a specialization in International Finance & Investments and over six years of financial writing experience. She is passionate about long-term investing to build wealth, avoids day trading and speculations, and loves a good Warren Buffet quote.