Logo

6 Simple Steps to Building a Better Budget

7 min read
Blog CreateBudget Header

If the thought of creating a budget makes you want to run for the hills, you aren’t alone. Budgeting can often feel overwhelming, especially if looking at bank statements or even just thinking about your money makes you feel uncomfortable. But the truth is, your budget is simply a plan for your money—one that has the potential to improve your financial health, empower you to live within your means, reduce financial stress, and help you build the life you want.

Why You Need a Budget

A successful budget can reduce your day-to-day stress by helping ensure you’ve got all your financial needs and responsibilities covered. Though there are all sorts of budgeting methods available, the goals remain roughly the same. 

Tracking your spending

When you see exactly where your money is going, you can pinpoint areas where you may be overspending and find ways to reallocate those funds for better use.

Reaching your financial goals

Whether you’re more focused on short-term goals, like a home repair project, or long-term goals like saving for retirement, you’ll have a much better chance of achieving them with a budget. Creating and sticking to a budget gives you the opportunity to take your goals out of the realm of wishful thinking and turn them into reality. 

Controlling your debt

When you create a budget, you may be able to see the bigger picture and gain a clearer understanding of your debt. You might find that you can better manage your bills simply by being more frugal with your income. Or you may discover consolidating your debt or taking out a personal loan can help you save money over time. Creating a budget lets you tackle your debt head-on with a realistic plan to pay it down. 

Improving your discipline around money

Budgeting can help you form habits that affect much more than your bank account. A well-thought-out budget can teach you to be more intentional with your choices, increase discipline, develop better boundaries, and better understand what you truly value. Plus, effective budgeting can help decrease anxiety and foster more positive feelings about your future. 

How to Build a Better Budget: 6 Simple Steps

Like many endeavors in life, the hardest part is getting started. Taking a methodical, step-by-step approach can help simplify the process and minimize any anxieties you have about creating your budget.

1. Determine your annual spending capacity

Rather than starting with your monthly income and expenses, try looking at how much you typically make and spend in a full year. Why? Because there’s no such thing as a “typical month,” and some expenses aren’t monthly. Add up all your income sources together—even your occasional boosts like bonuses, commissions, or tax refunds. Then, divide by 12 to give you a good estimate of what you may have to spend each month. From there, you can determine which months may have more expenses—like around the holidays—and let you plan which months you may need to cut back to save. 

2. List your non-negotiable expenses

For this step of the budget-making process, write down each of your non-negotiable costs. This list may include: 

  • Rent or mortgage payments

  • Car payments

  • Groceries

  • Basic utilities

  • Childcare or school tuition

  • Insurance premiums

  • Minimum debt payments (credit cards, car loan payments, etc.)

Some costs are fixed expenses, meaning you know exactly how much they cost each month—like your rent or car insurance. Variable expenses, on the other hand, can be harder to calculate.

To figure out your variable expenses, try to find the average cost by looking over the past 12 months of bills. For example, gather 12 months' worth of electric bills, add up the total and divide by 12 to get an average cost. For partially documented expenses, like trips to the grocery store where you pay with cash, do a review of the past few weeks to get a good estimate of how much you spend. 

3. Create spending categories

Create categories for all your expenses—like housing, transportation, food, utilities, healthcare, and insurance. Make sure to separate your “needs” from your “wants,” so you know how to prioritize if you ever need to tighten your budget.  For example, you need to budget for groceries and food each month, but you may want a nice dinner out. By putting these into separate categories, you are able to better see how much money you can save if you need it. 

4. Compare multiple months to see trends

Comparing your expenses from month to month can give you a clearer understanding of your spending habits, particularly when it comes to problem areas. You may find, for example, you’re spending way more on takeout meals than you realized. Once you see these patterns, you can make changes until you find a better balance in your spending.. 

5. Prioritize savings and debt repayment

Most Americans have some kind of debt. A budget can help you pay it down and start saving for the future—as long as you’re willing to commit. Within every month, set aside funds for paying back your debts—like student loans or credit card bills. But don’t stop there. Making room in your budget to save can help you in the long run. 

Some savvy budgeters find success in prioritizing savings by “paying yourself first.” When you pay yourself first, you set aside money for your financial goals before you spend it on immediate wants. 

Depending on your goals, paying yourself first may include: 

  • Building an emergency fund for unexpected expenses

  • Contributing to a retirement account

  • Saving for your kids’ education costs

  • Getting out of debt faster

  • Purchasing a home

  • Replacing a car

  • Buying insurance

  • Contributing to your health savings account (HSA)

If you live paycheck to paycheck, prioritizing these non-immediate needs may sound daunting. But don’t worry too much about the number you’re contributing. “Almost everyone can save at least 1% of their income,” notes financial blogger J.D. Roth. It all adds up. 

6. Allocate for fun

No matter your approach, you won’t stick to any budget for very long if you don’t make room for enjoying life. Once you’ve committed money toward your necessities and your financial goals, give yourself permission to budget in some fun: sports or music lessons for the kids, dining out, local travel, etc. Even while you're prioritizing saving for the future, it's important to take care of your mental health and budget for the present moment, too. 

How to Maintain Your Budget

Your budget is an essential part of your financial health. Once you’ve created yours, set yourself up for success by reviewing your finances regularly. 

1. Check in often

Check in on your budget on a regular basis to ensure everything is on track. Remember that a budget is simply a money management plan, not a rigid set of rules. The more you nurture it, the healthier it will be. 

2. Automate where possible

Worried you may forget important bills and throw your budget off course? Automating your recurring payments can be a budget lifesaver. Set up autopay for your credit cards, utilities, and other regular expenses, making sure to keep track of when those payments are due so you’ll always have enough to cover them. You can even set up automatic withdrawals for your savings and 401(k) contributions with your bank and employer. 

3. Use budgeting software and apps

Personal finance apps like Trim1, Mint, and Acorns are popular options, and there’s now an app for practically any activity connected to your budget. Whether you want to track your spending, set savings goals, make mobile payments, view all your accounts in one place, get customized alerts, or do just about anything else, your favorite finance app can probably do it.

4. Listen to financial podcasts

Similar to mobile apps, podcasts have become a huge part of our culture. With countless options available, you can find podcasts covering everything from money-saving tricks to advice on retiring early. 

5. Join a budgeting community

Feeling alone in your budgeting journey? Join a financial community! Money is a stressful and emotional topic, and talking with others who are on a similar path can make you feel heard, supported, and understood. It’s also a great way to get tips from more seasoned budgeters and learn from others’ past mistakes. 

The Bottom Line

Creating and maintaining a budget can change the way you think about and manage money for the long term. Not only can building a budget help you curb your spending, pay down debt, and save, it can also help you develop better financial habits that can have a positive impact on other areas of your personal life. 

How to Create a Budget FAQ

1. I’m a first-time budgeter. Where do I start?

If you’re a first-time budgeter, start with the basics to avoid getting overwhelmed. Calculate your after-tax income, write down all your recurring expenses (both fixed and variable), categorize your expenses, and prioritize saving for the future and paying down debt. Revisit your budget regularly to get to know your spending habits and make adjustments as needed. 

2. How can I live off my budget and still save money?

Saving money can be challenging on a tight budget, but even setting aside just 1% of your income can make a difference over time. Try gradually increasing that percentage so you can boost your savings without seeing too much of an impact on your daily expenses. 

3. How do I tackle debt on a budget?

Use the “pay yourself first” method to ensure you’re putting money toward your outstanding debts each month. Try also paying more than the minimum on your recurring debts, cutting out unnecessary expenses where you can, using budgeting apps, and revisiting your budget regularly to find and address key areas of overspending. 


  1. LendingClub Bank receives compensation from Trim for referrals made through LendingClub.

You May Also Like

Related Resource Center
Soft inquiries won’t impact your credit scores, and hard inquiries can hurt your scores slightly. Here's what you need to know.
Oct 9, 2023
6 min read
woman on mobile phone image
Having a money plan in place before you turn in your resignation can make the transition smoother. Learn ways to prepare your finances before you go.
Sep 4, 2023
5 min read
Young man relaxing in an orange hammock by a misty lake holding a cup of coffee, looking at laptop on his lap.
Take control of your money and personal wellbeing with tips to recognize burnout and restore your physical, financial, and emotional health.
Aug 7, 2023
6 min read
Woman in pink blazer sitting on ground with laptop in lap next to young girl looking at documents
With six in 10 U.S. consumers living paycheck to paycheck, could budgeting, saving, debt management, or side income be the antidote?
Jul 25, 2023
5 min read
Paycheck to Paycheck
Your credit score plays a role in nearly every financial move you make. Having a great credit score can save you hundreds (or thousands) of dollars a year through lower interest rates on your credit card accounts, personal loans, moving loans, car loans, or mortgage.
Jul 9, 2023
4 min read
Man in denim button up holding a phone, sitting at table smiling
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
Blog-post
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
We offer several ways for you to make your monthly auto loan payment, so you can choose the method that works best for you. A statement will be mailed to you every month that shows the payment amount and due date.
Nov 29, 2023
less than a minute read
LendingClub provides a year-end statement that summarizes your account activity, including how much interest you’ve earned and information regarding Notes tied to loans that have been charged off.
Jun 7, 2023
less than a minute read
Applying for a lending product is fast, easy, and confidential.
Jun 7, 2023
less than a minute read
Adding creditors to your balance transfer loan is easy.
Jun 7, 2023
3 min read
To qualify for a lending product with LendingClub Bank, you must...
Jun 7, 2023
less than a minute read
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
Sep 6, 2023
4 min read
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read

LendingClub Bank and its affiliates (collectively, "LendingClub") do not offer legal, financial, or other professional advice. The content on this page is for informational or advertising purposes only and is not a substitute for individualized professional advice. LendingClub is not affiliated with or making any representation as to the company(ies), services, and/or products referenced. LendingClub is not responsible for the content of third-party website(s), and links to those sites should not be viewed as an endorsement. By clicking links to third-party website(s), users are leaving LendingClub’s website. LendingClub does not represent any third party, including any website user, who enters into a transaction as a result of visiting a third-party website. Privacy and security policies of third-party websites may differ from those of the LendingClub website.

Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. ​Deposit accounts are subject to approval. Only deposit products are FDIC insured.

“LendingClub” and the “LC” symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.