How To Create a Budget

How to Create a Budget (And A New Year's Resolution You Can Keep)

January 17, 2020

Still racking your brain for a New Year’s resolution? How about making a commitment to be more financially fit!?

Just like diet and exercise can help you stay physically fit, there’s a simple, not-so-secret key to getting in better financial shape: a budget. Now if the word “budget” sounds tedious (or terrifying), take note — it’s a lot easier than you think, especially with the right tools. At Northwestern Bank, we even created a handy budget spreadsheet and a checklist to help you out.

Ready to get started? Download NWB's free budget spreadsheet by clicking the button below.

Budget Spreadsheet (800 KB)


follow these steps to create a budget:

STEP 1: Note your "real" (take-home) income.

Only count the amount that you actually see deposited into your bank account every month from your paycheck. This won’t include taxes, social security, your 401k contributions, insurance premiums or your health/flexible spending account allocations, because these items are usually taken out before your paycheck hits your bank account.

HINT: Enrolling in online or mobile banking with NWB is the most convenient way to track your income and expenses.

STEP 2: Come up with projected costs – “fixed” and “variable."

Use past months to come up with all of your possible expenses, and put these amounts in your budget spreadsheet as “projected costs.” Every projected cost will be one of two types:

  • Fixed expenses: This is any cost that won’t regularly change from month-to-month, including rent/mortgage, car/student loan payments, and insurance premiums. Utilities (sewer, electric, garbage, etc.) also count – but they’re a little trickier. Research what you’ve spent on your utilities over the past year, divide by 12 and use the monthly average as your projected cost.
  • Variable expenses: These are expenses that change every month, and include things like groceries, gas, entertainment and clothing. You will need to come up with an ideal amount (projected cost) you’d like to spend each month on these categories.

HINT: After coming up with all of your costs, make sure your projected costs don’t exceed your take-home income. This is called going over budget!

STEP 3: Track actual expenses each month.

Pick a certain day each month to add up all of your real expenses from the past month (bank and credit card statements are a good place to start). Picking the same day each month — the 1st, or the 21st, for example — can help keep you in the good habit of monthly budgeting.

STEP 4: Determine if you are over or under budget.

This is it – the moment of truth! Add up your real costs, and compare them to your projected costs. The goal is to be “under budget,” or keeping your real costs less than your projected ones.

  • If you are over budget: Take a deep breath – then make a change! First, divide your variable expenses into “wants” and “needs.” Consider eliminating purchases that are just “wants.” Then if you’re still over budget, think about ways to make your fixed expenses less costly. That might mean moving into a place with cheaper rent, or sacrificing your satellite dish for basic cable (or unplugging altogether).
  • If you are under budget: It’s time to celebrate! And, to put your leftover money toward your next step …

STEP 5: Set savings goals. Put them in writing.

Make a list of all the financial goals you’d like to reach. Start with short-term goals that you can reach in the next three to six months — things like building an emergency fund, paying down credit card debt or saving for a vacation. Then, include long-term goals like saving for your child’s education, putting a down payment on a home, and building your retirement fund. Any time you are under budget each month, take that money and apply it toward your long and short-term savings goals!

HINT: If you need help, make an appointment today with an NWB professional who can help you set and keep your financial goals.