How to create a budget

Managing your money wisely can help you carve out the life you want. Whether you're saving for a down payment on a home, paying down debt or planning a wedding, a budget can keep you centered.

Learning how to budget money for beginners isn't difficult. It may take some practice, but the payoff is worth it when you're feeling on top of your game and progressing smoothly toward your financial goals. Our guide can help you learn how to create a budget — and stick to it.

Step 1: Review your current financial situation

First, take stock of where you are now. This step is about getting a high-level view of your monthly income, where it's going and what you currently own. To get started:

• List your assets, including savings, retirement accounts and investments.
• Figure out your after-tax income.
• Write down your living expenses and any debt payments.

These figures will give you a sense of what's flowing in and out of your accounts each month. You don't have to get super detailed at this stage but be sure to write everything down. You'll use this information later when you learn exactly how to create a budget.

Keep it simple at first

Consider creating a simple budget at first to help you adjust to using one. If your first budget is complex, you may feel overwhelmed and give up. You can add details or make other changes later.

Step 2: Track your expenses

The next step is to list your monthly expenses in more detail. Look at your list of living expenses and debt payments from Step 1 and group them into categories. These groupings can help you better understand your spending habits.

Some common expense categories include:

• Food
• Taxes
• Utilities
• Clothing
• Insurance
• Education
• Health care
• Entertainment
• Transportation costs
• Debt payments
• Emergency fund
• Childcare
• Subscriptions
• Mortgage or rent

You can add more expense categories if needed.

Although you can track your expenses on paper, you may prefer to organize this information in a budget spreadsheet. You could also use a template to help you manage your monthly expenses.

The Citizens mobile app* is another helpful tool when tracking your expenses. Based on your unique account activity, the app gives you personalized tips to help you reach your financial goals. You can also monitor your banking activity to quickly catch double charges, higher-than-usual bill payments and other financial moves.

Step 3: Set financial goals

Next, it's time to dream: What are your financial goals? Think about what you'd like to save for in the short and long term. Also, consider any expenses you want to reduce, like credit card debt or student loans.

Examples of financial goals include:

• Pay down debt
• Save for a wedding
• Purchase a new vehicle
• Save money for college
• Build an emergency fund
• Start a college fund for a child
• Maximize retirement contributions

Write down your financial goals and label each one as either short term (within one year), midterm (one to five years) or long term (more than five years out). Knowing the timeline for each goal will be helpful when you prioritize them later.

Step 4: Prioritize your goals

Review the list of goals you created. Are some goals more urgent than others? Organize your goals from the most important to the least. You might consider paying off smaller debts first so you can put more money toward other short and long-term goals.

Prioritizing your goals can help you decide if you need to allocate more money to certain categories. You can continue to adjust your budget until you're satisfied.

Step 5: Build your budget

Now it's time to crunch some numbers. First, list your expense categories. You might also include a "savings" category to help you set aside money to reach your financial goals.

Next, allocate a certain percentage of your monthly income to each category — decide the amount based on your priorities. If you're not sure how to weigh your needs, you could try the 50/30/20 budget rule: 50% of your after-tax income goes to your necessities, 30% goes to your wants and the remaining 20% goes to your savings.

When you finish, add up all of the money you allocated to make sure it matches your monthly income. If the amounts match, all of your monthly income is accounted for in your budget.

To help you better understand the process, consider the following example of a monthly budget for a person who makes $70,000 a year ($5,833 per month) after taxes. Their financial goals are to grow an emergency fund, contribute to a retirement account (savings) and pay off credit cards (debt payments).