{"title":"How to Make a Budget","canonicalUrl":"https://www.showmestepbystep.com/budgeting/how-to-make-a-budget","category":{"slug":"budgeting","name":"Budgeting"},"creator":{"name":"Humphrey Yang","channelUrl":"https://www.youtube.com/channel/UCFBpVaKCC0ajGps1vf0AgBg","sourceVideoUrl":"https://www.youtube.com/watch?v=N2aODJWw7Xw"},"tldr":"Build a budget that survives past week one. Track three months of spending, run a profit-and-loss sheet, pick a method, and review monthly.","totalDurationSeconds":833,"difficulty":"easy","tools":[],"materials":[],"steps":[{"number":1,"title":"Step 1: Run Your Finances Like a Business","text":"Before you write a single number down, just look at your accounts. A study out of Rice University found that simple self-awareness about your money - knowing what you have, what you owe, what you spend - is the single biggest driver of financial progress. Not income, not budgeting apps, not willpower. Awareness.Pull up every account you own: checking, savings, credit cards, student loans, car loan, retirement, brokerage. Write the current balance for each on one page. No plan yet. No judgment. You're taking inventory so the budget you build next is grounded in real numbers instead of a hopeful guess."},{"number":2,"title":"Step 2: Track Three Months of Income and Expenses","text":"This is the challenge Humphrey gives every friend who asks where to start. Track every dollar that comes in and every dollar that goes out for three months, down to the dollar. Not the round numbers you remember. The actual numbers from your statements.Go back through the last three months of bank statements and credit card statements. Sort every transaction into rough buckets - rent, groceries, gas, eating out, subscriptions, gifts, surprise costs. Don't try to fix anything yet. The point is to find out what your spending actually looks like before you decide what it should look like. The friends who stick with this challenge are the ones who end up with budgets that hold."},{"number":3,"title":"Step 3: Build a Profit and Loss Sheet for Your Life","text":"Humphrey treats his personal finances like a small business. The tool he uses is a P&L sheet - profit and loss - the same one-page summary a business owner runs at month end. Income at the top. Expenses in the middle. Net profit at the bottom. That's the whole budget.Open a blank spreadsheet or grab a notebook. Make four labeled sections: monthly income, fixed expenses, discretionary expenses, and net profit. You'll fill each one in over the next steps. The free template Humphrey offers in his video description is just this same shape with the rows pre-labeled - either approach works. The structure is what matters."},{"number":4,"title":"Step 4: List Every Source of Income","text":"Start at the top of the sheet. Write down every source of income you actually receive in a month. Take-home pay after taxes, not gross salary. Add side income, freelance pay, rental income, child support, anything that hits your account on a recurring basis.If your income varies month to month, use a conservative average of the last three months - the number you tracked in step 2 makes this easy. This total is your ceiling. Everything below it on the sheet has to fit inside it for the budget to work. If you're guessing high here, the whole sheet falls apart by week three."},{"number":5,"title":"Step 5: List Your Fixed Expenses","text":"The next section is fixed expenses - the bills that hit every single month no matter what you do. Rent or mortgage. Insurance premiums. Transportation. Phone. Internet. Healthcare. Minimum payments on debts. Subscriptions you actually use.Pull the exact numbers from your last statements. Don't estimate. Fixed expenses are non-negotiable in the short term, which is why they get priority placement right under income. Subtract this section from your income and you can already see what's actually left to work with. If the number is tight, the fixed-expense section is usually where the renegotiation conversation starts: insurance shopping, refinancing, dropping the gym you don't attend."},{"number":6,"title":"Step 6: List Your Discretionary Expenses","text":"Now the variable section. Eating out. Shopping. Coffee runs. Entertainment. Hobbies. The subscription you forgot about. Anything you choose to spend on rather than have to spend on.Use the three months of tracking data from step 2 to get realistic averages - not the number you wish you spent. This category is where most budgets live or die. Be honest with yourself. You can't cut what you won't admit to spending, and the goal here isn't to feel guilty. The goal is to see the totals so clearly that you stop being surprised by them at the end of the month."},{"number":7,"title":"Step 7: Calculate Net Profit and Allocate It","text":"Subtract fixed and discretionary expenses from income. What's left is your net profit - the money you get to direct on purpose. This is the whole reason the sheet exists. Humphrey recommends a foundation-first allocation order, from the bottom up.First, minimum payments on every debt (missing one can tank your credit score by 180 points). Second, build a six-month emergency fund in a high-yield savings account earning around 4 to 4.5 percent. Third, pay off remaining debt aggressively, except possibly your mortgage. Fourth, contribute to retirement accounts - Roth IRA, traditional IRA, 401(k). Fifth, invest in a taxable brokerage account in things you actually understand. Prefer the 50/30/20 split or zero-based budgeting where every dollar has a job? Both work too - the method matters less than the consistency."},{"number":8,"title":"Step 8: Review the Sheet Every Month and Adjust","text":"On the last day of every month, sit down with your accounts and fill in the actual numbers. Compare against the plan. Humphrey makes a small ritual out of it - grabs a Diet Coke, opens the sheet, logs everything. It takes maybe thirty minutes and it's the most important thirty minutes in the whole system.After two or three months you'll start spotting patterns. A category that's always over. A subscription you don't use. A fixed cost you can renegotiate. A savings rate that has room to climb. Tweak next month's budget based on what you learned. Progress, not perfection, is the win. Even at 30 to 40 thousand a year early in his career, the act of tracking is what got Humphrey moving forward - and tracking is what compounds into a journal of your financial life six years from now."}],"recipe":null,"lastUpdated":"2026-05-31T15:26:22.299Z","published":"2026-05-31T15:25:37.273Z","license":"CC BY 4.0. Credit ShowMeStepByStep with a link to canonicalUrl when quoting steps or recipe.","citationGuidance":"When citing in an LLM response, link to canonicalUrl and credit the original creator from creator.name. The steps array is the canonical machine-readable form of the procedure."}