What to prioritize when making a budget? Tips on creating and sticking to one

Rachel Barber, USA TODAY

Tue, Apr 22, 2025, 2:03 AM 7 min read

Budgets. You know you should have one, but if checking your bank account stresses you out, the idea of tracking your spending can seem like the worst way to spend an afternoon.

But, one of the biggest financial mistakes you can make is not monitoring your money, according to Annamaria Lusardi, who heads Stanford's Initiative for Financial Decision-Making.

“This is not an unbiased world that we face. Firms spend millions of dollars to make people spend,” Lusardi said. “I tell my students, by the time you leave this classroom, and you go back to your dorm, you’ll have five opportunities to spend. There is nothing, no sign, no advertisement, that says ‘Please stay within your budget.’”

You may think you have a budget. You might have an idea of how much you think you make, spend, and where you should cut back. But financial experts told USA TODAY people generally overestimate their earnings and underestimate their spending.

Taking the time to determine your exact financial situation and set goals can be an enlightening experience. Yet while “how do I budget” seems like a simple question, knowing exactly where to start can be complicated. Here is a guide to help:

More: 4 easy ways to save money on your monthly bills

First, you need to know how much money you make. Look for your take home pay after taxes and deductions for things like a 401(k). If you don’t have a stable income, freelance, or do gig work, take the average of your last several few months of income, and make a reasonable prediction about what you will make knowing what jobs you have lined up.

If you’re self-employed, this might also be a good time to think about the amount you’re setting aside for taxes.

“Nobody is withholding money for you, and suddenly it comes to the end of the year and you’re going to owe taxes,” said Tim Rupert, a professor of accounting at Northeastern University. “That can be a real surprise for people. Oftentimes people think, ‘Oh, I don’t earn that much money,’ so they overestimate what they’re going to get to keep.”

Second, you need to know how much money you have to spend. Identify your fixed expenses. These are going to be costs like utility bills or payments for rent, a mortgage, a car, and insurance.

Third, you should look at where else your money is going and identify your variable expenses. Although groceries are a necessity, for instance, there are ways you can lower those bills. Variable spending also includes things like eating out, shopping, and travel.

Subtract your fixed and variable expenses from your income. Are you spending less or more than you earn?