A budget is one of the most powerful tools for making sense of your finances. No matter where you are in life, knowing how much money you earn and how much you spend can make all the difference.

A personal budget can be a simple list, or it can be a detailed line-by-line examination of all of your spending. It's best to start simple and build from there. At its heart, a budget is simply a list of all of the money you have coming in each month (your income) and the money you have going out (your expenses). Your income might include paychecks, royalty payments, or investments. Expenses include everything you spend money on. Some of these are obvious, like rent, groceries, and your phone bill. But don't forget to include expenses that are easy to overlook, like subscriptions.

If you're creating your first budget, keep it simple. You can use pencil and paper or a spreadsheet, whatever is most comfortable to you. Later, if you decide to amp up your budgeting game, you can use a spreadsheet, calculator, or mobile app. You'll need to make two lists or columns. The first will show your income, and it's probably the simpler of the two lists. Most people would list income in the form of a paycheck, so you may only have one line for income. Expenses will be a bit more in-depth because there will be more lines. Slot each expense into a broad category, like housing, food, transportation, or entertainment. Once you have everything listed, you can break expenses down into subcategories if you want.

If you rent an apartment, you'll want to make that first thing on your list. Paying your housing payments on time should be a top priority. Other recurring expenses are next. These include payments for a car loan, student loans, or personal loans. Don't forget utility bills like electric service, Internet, and your phone bill.

You need to eat, so you'll want to set aside some money for food each month. Prioritize the groceries you need to keep yourself fed. Transportation expenses might include a car payment, public transportation, or parking fees.

Savings should fall into the essential category as well. Depending on your goals, your reasons for saving may vary. You may need to establish an emergency fund in case you need unexpected car repairs or medical bills. You might also be saving for college, retirement, or a trip abroad.

Once your needs are considered, you can account for your wants. Expenses listed here should be lower priority than rent and food. This may include entertainment, like streaming services or going to the theater. Dining out belongs in this category, too. When times are lean, it's easier to cut back on dining out than to reduce groceries.

Add up everything in your expenses list, and subtract that number from your income list. If you got a positive number, congratulations: You should have some of your paycheck left over at the end of the month. Think about adding that extra money to your savings. But if you got a negative number, your expenses are more than your income. Knowing this is the first step in fixing the problem.

When you look over your budget, you may be able to quickly identify areas where you can save. Maybe you subscribe to four or five streaming services, including a few that you rarely watch. Canceling unused services may seem like a drop in the bucket, but small changes can add up. Instead of splurging on new clothes or video games, wait for these items to go on sale. It can be tough to wait, but the savings can be substantial.

What Is a Budget?

Getting Started

Saving Money

More Resources