How to Budget and Save Money? (10 Easy Steps to Financial Freedom)

Are you struggling to make ends meet? Are you living pay cheque to pay cheque?

Or maybe you are on the blessed side and you don’t need to worry about money, but do you know how much you earn and how much you spend? Do you not fear that maybe one day, your card will be declined while purchasing a very important purchase?

You will be surprised how a simple budget can help.

Let us be real. Wherever you are in life or no matter how big or small your income is, budgeting should be a very important part of your life!

What is a personal budget and why it is important?

A personal budget is a plan on how you will use your monthly income to fund or pay off your estimated expenses for the month.

It is essential to make a budget because money is a limited resource but it is used virtually in every part of our lives.  We need money to buy food, to pay for our shelter, to afford kid’s tuition, etc. In other words. every items and/or activities in our life competes for our money, so if we do not dictate where it should go, then we can expect that it will disappear without a trace.

If you need more convincing why budget is important, then please read, “Why Budget is Important?”

Today, I will share to you my 10 steps to budget my income which helped me save money and live a financially-stress-free life for 30 years and counting.

My goal in writing this article is to give you step-by-step instructions on how to budget to enable you to have money when you need it.

10 Steps to Budget and Save Money

Step 1: List All Your Income then Add Them To Determine Total Monthly Income


The first step is to determine your after-tax monthly income. Make sure to list all of your income if you have more than one sources of income.

If you have an irregular monthly income, then determine your average monthly income. Summing up your monthly income for the past 12 years then it by 12. The number that you will get is the number that you will use on your budget

Step 2: List All Your Expenses

This step is the most tedious of all 10 steps but this is the most crucial step of budgeting because you need to get an accurate picture of where you spend your money.

Instruction for listing your expense:

1. Gather your bank statements and credit card statement. Preferably, get your statement of account for the last 3 months so you can get a better picture of your monthly spending (more is better).

2. Open up a spreadsheet software or grab your budget notebook.

3. Create two columns on your spreadsheet or in your notebook.

4. Put a header, “Description” on the first column, then put a header. “Amount” in the second column. You can also create one more column and name it “Comments”, but this is optional.

5. Lst down where you spend your money on the first column and write how much you spend on the next column.

Step 3: Categorize Your Expenses

Next, you will need to categorize your expenses whether it is a  “fixed expenses” or  “discretionary expenses”


Fixed Expenses (recurring bills) are expenses that you have to pay every month to avail needed services or products that are essential to your lifestyle.

Conveniently, these expenses are the same month after month so it is easy to allocate a budget to it. Unfortunately, these expenses are “necessity” thus it will be the last to go from our budget if we want to save.

Examples include the following: bus pass, home, and car insurance, etc.

Discretionary Expenses (spontaneous spending) are expenses that you spend to buy your “wants” and vary in amount and/or frequency every month.

Discretionary expenses are the first to go when we are trying to save because losing the services/product associated with it will not gravely affect our lifestyle.

These spendings are usually eating out, coffee trips, sudden vehicle repairs, emergency medical bills, unexpected school expenses etc.

Step 4: Sum Up Your Monthly Regular Bill then Subtract it from Your Total Income


Now that we have our total income and we are done categorizing our expenses into fixed and discretionary expenses, the next step that we should do is to determine how much of our income is left after we subtract the total fixed income from it.

Total Income – Fixed Expenses = Usable Income

Ignore the discretionary income for now because we have to use your usable income to pay off your debt, create an emergency fund, pay yourself first before you can use it to spend on your wants.

If the difference turned out to be positive, then it tells you that you have extra cash that you can use to save for rainy days, invest for your retirement or use it for your discretionary expenses.

On the other hand, if it is negative then you are in debt and appropriate actions should be done quickly.

Step 5a: If Your Net Income is Positive then Go to Step 6

Hopefully, you still have money left after subtracting your regular bills off your income. If you do then hold on tight and I will teach you how to make every single dollar of your work for you of Step 6 to Step 9.

Step 5b: If Your Net Income is Negative then Go to Step 10

If you determined that you are in debt, then I would recommend you to read my article on How to Pay Off Debt Quickly

Step 6: Open an Online Savings Account for an Emergency Fund, Decide a Percentage of Your Excess Income to Transfer, Set an Automatic Monthly Transfer


The first thing you should do with your usable income is to allocate a portion of it to your emergency fund.

Log in to your online bank or go to your local bank, then open an online saving account and name it Emergency Fund.

It is up to you what percentage of your “surplus” income you will allocate to this fund, but I want for you to make it a goal to save up an equivalent of 4 to 6 months of your salary.

After deciding how much you will put per month, then set an automatic money transfer from your chequing account to your saving account. Your online bank should have this option but if you don’t know how to do it then go to your local bank or to your call the customer service and ask for assistance.

I have written an article about “Automating Your Personal Finance“. In this article, I showed steps on how to automate your finances to reduce the time required from doing a budget.

Step 7: Open a Registered Retirement Account or Tax-Free Savings Account, Decide a Percentage of Your Excess Income to Transfer, Set an Automatic Monthly Transfer

This step is exactly the same as Step 6. The only difference is you are opening a registered retirement account or tax-free savings account instead of an online savings account.

That being said, you should determine what percentage you will put to your retirement plan then set a monthly automatic transfer.

Step 8: Open an Account for an “Expected Spending” Fund, Decide a Percentage of Your Excess Income to Transfer, Set an Automatic Monthly Transfer

The principle is the same with Step 6 and Step 7 except that you need to have an idea of what are your “Expected Expenses”


For example:

If you are an extravagant gift giver, then you are probably ready to spend about $850 as average Americans do. Instead of buying now and pay later,  you should save at least $71 per month starting in January so you have money to spend when Christmas comes. You can still use your credit cards but instead of paying your bills after the season, you will be putting debit to your credit card before you buy gifts and you should not go above what you have deposited.

The idea works the same if you have a car for example. You know spending for an oil change and other car maintenance is part of being a car owner. So, why not save a small amount every month instead of panicking where to get the money on the day of your car maintenance. Again, use your credit card as a debit card or in other words, deposit money into your credit card before using it.

These are just an example. Your expenses would be different and your priorities will be not the same. The important lesson to be taken from here is you should be aware where your money goes, set aside money before you the purchase date, then use cash to buy these things instead of putting it on a credit using your credit card. This way, you will avoid paying interest fees.

Step 9: Open an Account for a “Life and Leisure Fund”, Determine Future Life and Leisure Expense, Set an Automatic Monthly Transfer


You should know the drill by now. This step is the same as step 8, but instead of saving money for Expected Spending, you will be saving your money for a future vacation or future “luxurious” big purchases.

For example, if you are planning to go on a vacation in 12 months, then determine how much the cost of the vacation is then divide it by 12. The amount that you will get is the amount you need to save every month for the next 12 months.

I separated this step from 8 even though they are the same because I believe that it will motivate you to save if you know you can use your money to purchase something you really love to do. On the flip side, if you run out of money in step 8, then this step should take a back seat until you figure out how you will cut your spending.

Step 10: Allocate Money for Guilt-free Spending Fund

If by the end of your budgeting and you still have some money left, then use that money for your “Guilt-Free” spending account. You can use this fund for your random purchases like spending on food cravings, trending toys, on sale makeups of video games, etc.

If you are using a credit card then automatically transfer what is left to your net income to your credit card at the start of the month. You would want to see your credit card on a “negative” on day one of each month. You will then stop using it once the balance reaches to zero. 

If you are thinking of purchasing an expensive item and it is not in your budget, then don’t use up all your balance so it grows every month!

Unfortunately, in this example, we are short $300 so no money can go to the guilt-free spending account. If this happens to you, then the solution is to play around on how much you will allocate for each expense. The important thing that I want you to do is to ensure that your “Final Income” should be zero. Likewise, if your Final Income Left is more than $100 then readjust your allocation again.


Creating a budget is easy and straightforward. In a nutshell, you just need to know how much you earn and tally all of your expenses. Your goal is to make sure that the difference between your income and your expenses is zero. If not, then you need to eliminate or reduce your expenses.

Part of budgeting is to forecast how much you will be spending in a period of time. Once known, you have the responsibility to set aside a portion of your income every month so you can be financially at peace when the time when you need to pay your bill comes.

It is important to save for your expenses and not to take a credit. There is a proverb in the Bible that says,

“The rich rule over the poor, and the borrower is a slave to the lender” – Proverbs 22:7

We may come from different faith, but we can all agree that this passage speaks truth. We can deny the reality, but the fact is if you have a huge loan, then you are basically living your life working for your lender.

What do you think?

Does this post help you on how to budget and save? Did you learn anything new? Are there steps that you disagree or confused?

Please feel free to give me some feedback! Leave some comments and make sure to like our Facebook Page!

But Wait, There is More!

If you are looking for ways to make extra income, then I highly recommend that you check out Wealthy Affiliate. See my personal review of the site here!

If you want to learn more on how to budget then I suggest that you read Dave Ramsey’s Complete Guide to Money or The Total Money Makeover

11 thoughts on “How to Budget and Save Money? (10 Easy Steps to Financial Freedom)”

  1. You have presented some very wise advice here. So many people are in serious debt because they use their credit cards a little generously. When interest rates are low, people will buy a house that they really can’t afford. When the interest rates suddenly rise, they find themselves homeless. When my husband and I bought our home, our first mortgage, the interest rates were at a horrible 16%!! Hard to imagine with our low interest rates these days, right? We always had an overdraft, to cover expenses we could not meet monthly. We tried hard to follow a budget but expenses kept coming up that we had no control over. It was a scary time. My husband is an accountant and did his best to present a budget but life just took a turn for the worse at times. I think everyone should sit down and follow your advice to form a budget. 

    • Hi Madeline

      Thanks for sharing your experience and I am thrilled to know that you agree with my article. 

      I believe many people don’t do a budget because they believe it is hard, but this is far from the truth. 

      The principles of budgeting are not really that complicated, and to be honest most of us are already doing it but only in reverse. We purchase first before we pay then we set aside money to pay our credit cards (original amount + INTEREST!) but budgeting is we save first before we pay (that is 19% in savings!). 

      There is a solution for unexpected expenses. In my post, I mentioned in step 6 to create an Emergency fund or in step 8 to create an Expected Expense account. In these steps, we try to save up for the unexpected expenses. If there are no unexpected expense in a month, then that is good because we increase our safety net, but we should never assume that it will never come. We should always keep aside something for the rainy days.

      Now, I understand that step 6 or step 8 is hard to do at first especially if we are behind paying bills. What I hope we would do is to disregard how much we put aside for now, instead, I want us to focus on developing a new behavior. 

      By developing a new habit to do step 6 and step 8, a bad habit needs to go and usually, that is spending on unimportant things. As we develop the habit to regularly put money aside for step 6 and step 8, then our next goal should increase how much we put into it. 😊

      Hope that helps, 
      John Greg

  2. Hi, John!

    To answer your first question, I’m not yet a rich mum, and I’m kind of still living pay cheque to pay cheque due to the nature of my job and my risky online investing adventures. 

    Budgeting is critical, but unfortunately, many of us are not educated about this, even when we spend several at university. It even becomes more difficult to budget when you become a parent. You make plans, but unexpected things happen: your spouses loses their job, your children’s school shuts down and you have to make new plans, your children or spouse need an expensive medical intervention, etc. 

    I’m glad I found your post. I think there are a lot of things here that my spouse and I would benefit from.

    • Hi Princila, 

      I am glad that you are able to relate to my blog. 

      This is just my opinion but I think the reason why our government don’t do budgeting at school is because they need us spending so it looks good on our GDP. 

      Anyways, be encourage since the principles of budgeting is really easy. The hard part is how to change our spending habits. The good news is bad spending habits are just behavior that can be replaced with good ones. 

      Now what we know about bad behavior is it doesn’t change overnight. It takes practice and it takes time. My advice for you is to slowly do a budget. 

      Sure there will be months where unexpected things will come up and it will ruin your budget, but I hope that will not give you a reason to quit. When these months happen, you should still be proud because you tried to take control of your money. Just get up and be ready for the next month to win and don’t forget to adjust your budget. Maybe the reason why it is not working is because it does not reflect your lifestyle so do that. 


      John Greg

  3. You did a good job putting this together. Budgeting should be part of our everyday lives.  Because without budgeting you would just be living life and anything can happen and before you know it your money is finished. I like the steps you laid out they seem more comprehensive and thorough. When I am making my own budget i don’t usually follow your list. I kind of have my own way I do mine. Yours seems more thorough and I would be trying it out. Thanks for this

    • Hi Jay, 

      Thanks for your feedback. I am glad you agree with my idea and how I laid it up. 

      Honest advice though, I appreciate that you wanted to use my template, but if you already have a good budget plan and it is working fine then feel free not to change it unless if my steps will improve how you do yours. 🙂 

      I think a common myth about budgeting is we have to follow someone else and I disagree with this because each one of us has different priorities in life, therefore, budgeting needs.  

      I learned that one reason why people fail to budget is that they don’t like the process/result of their budget and again I believe that is because there is a disconnect between priorities and actions. 

      Mine is just a template/example and I just want people to take it but personalized it. 

      Thanks again Jay, I appreciate your feedback! 
      John Greg

  4. Hey John,

    I have to say I very much enjoyed this article. Throughout my entire life, I have witnessed financial struggles. Only recently myself and my husband were trying to make a household budget, but had no idea what to do with all the “little” expenses that pop up, like needing to buy a gallon of milk outside of what has already been budgeted for groceries.

    Your suggestion to gather bank/credit card statements for the previous 3 months and enter the data into a spreadsheet was extremely enlightening! Now, using your advise, I think we can make a more accurate family budget. Just wondering how I should record an income source that is not regular, such as a tax credits?

    Once again, I really benefited from your article 🙂 Thanks,


    • Hi Brenda!

      Thanks for reading my article. 

      Remember, do not be afraid to adjust your budget. Having to adjust it from time to time does not mean you failed the game. You are just simply adjusting your strategy.

      Many of us stop doing a household budget because an unexpected expenses make us believe that we cannot do this right.

      I believe we should see a budget as a guide of how we will use our income and not a rulebook that waits for us to fail and tell us that we are losers.   

      My advice for irregular income is to allocate it to a fund that you are falling behind. For example, if you have to use your emergency fund because of unexpected events, then replenish that fund. If for example though that everything is fine and you are up to date with your allocations, then feel free to treat yourself with something you are dying to get. 

      A budget should also allow you to reward yourself or your loved ones!


      John Greg

  5. This is all great advice! Realistic and sensible! Dave Ramsey would certainly approve.  It does seem as if there is never any such thing as “extra money” in real life.  Car repairs are always more than expected and seem to be shock to most people -labor is something I have been fortunate about in this category with a mechanic for a brother.  Insurance is something never to skimp on – even for renters.  When my apartment burned down it was life saving to have rental insurance to cover everything and it was worth every penny.  My advice on this matter is to make sure to have enough insurance to cover your artwork and finery. Books paid off my car.  I can’t say enough good things about renter’s insurance.

    • Hi Casey, 

      It made me happy for you to say that this article is “Dave Ramsey” approve. I like him very much and most of what I share is based on his lessons. 

      I like how you emphasize rental insurance. I believe Dave was also big on term/life insurance. 

      To be honest, the country I emigrated from is not big on insurance so I am initially not big on them, but I quickly learn how unexpected events can quickly ruin our finances and how insurance can mitigate that risk. Now I have all the “necessary” insurance to protect me from financial ruin. 


      John Greg

  6. Awesome budgeting information! This is especially good for younger people. I am retired so I have done the budget and I am set. This is not true for younger folks and even more so for couples trying to start a family.

    I agree with some other comments, in that credit cards are an issue for a lot of people. And, I can’t even imagine the college grads with their college loans. They really need a budget.

    There are many budgeting tools available, or you can create your own using Excel.

    I hope a lot of the younger crowd reads this and implements your plan.

    Thanks for the useful information.


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