How to Create a Budget

April 21, 2021

One of the biggest differences between people who feel financially fit and people who don’t is whether they create a budget and stick to it. Budgeting can be an eye-opening, uncomfortable, and uneasy process. However, budgeting can be beneficial to just about anyone, even if you feel like you have your finances under control but especially if you feel the need to reevaluate your spending habits in order to meet financial goals like saving for a trip or focusing on debt repayment.

No matter what your goals are, you can follow these budgeting tips to help track your spending and create a plan that will actually work for you.

Types of Budgets

A budget is a map for your money. There are different types of budgets depending on your financial goals. No one plan is better than the others. The ultimate goal is to find a monthly budget that works with your income, expenses, and lifestyle—one that you can stick with long term.

Common budgets include:

  • 50/30/20: Divides take-home pay — 50% to needs, 30% to wants, 20% to financial goals. The 50/30/20 budget is ideal for people just getting started on their budgeting journey, as it allows a little wiggle room for entertainment and leisure activities while also providing you with a structure to cover expenses, save, and pay down debt.
  • Envelope system: Requires you to cash or withdraw your income and place the cash into separate envelopes allocated to bills, entertainment costs, and other expenses. This system is more strict than the 50/30/20 rule. It is meant to limit your spending to the contents of each envelope.
  • Pay yourself first: Prioritizes a percentage of your income to go into a retirement or savings account. This method is helpful if you are looking to save money, invest in your future, and boost your long-term wealth and financial stability.
  • Zero-sum budgeting: Requires you to account for every dollar of your income and assign it a place to go. With a zero-sum budget, also known as a zero-based budget, you should not expect any money left in your wallet or bank account at the end of each month for excess spending.

How can Cushion help me?
Cushion Bill Pay gives you more visibility and control over your finances than ever before. Many people get hit with bank fees—such as overdrafts and late fees—due to cash flow problems. With Cushion, you can consolidate and track all of your bills and BNPL payments in one place, plan your budget by reviewing what’s coming down the pike, and avoid overdraft fees by temporarily pausing payments that might overdraft your account and resuming them when you are ready.

How to Create a Budget

When you leave your finances with no clear sense of direction, it will be harder for you to hold yourself accountable to your financial goals and keep track of all of the money leaving your wallet or bank account each month. Use these three steps as a guide to create a successful budget.

1. Evaluate your income and expenses
A good budget will include the amount of money you bring home from work each month, also called your net income or take-home pay, as well as fixed and variable expenses. Variable expenses vary from month to month and include costs like groceries and gas. Fixed expenses include recurring monthly payments that you’re on the hook to pay each month, such as:

  • Mortgage/rent
  • Phone/internet bill
  • Insurance
  • Utilities
  • Debt


Saving is unique, in that it can be considered either a fixed or variable expense. If saving is a priority for you and a certain amount of your regular paycheck will go into savings each month, it should be considered a fixed expense. Conversely, if you are focusing on other financial goals at the moment and your savings deposits vary from month to month, it should be considered a variable expense.

2. Take a deep dive into your current spending habits
After you have determined your income, fixed expenses, and variable expenses, go through your past three months of bank account transactions and credit card statements to get a better idea of your spending habits.

This exercise will highlight how much you spend on variable expenses and miscellaneous items like food, clothing, and entertainment every month. You may find that you have excessive spending in certain areas and decide that you want or need to cut back.

This step could also illuminate the budgeting method that would be best for you and your finances. For instance, if you’re generally good at limiting leisure spending, the 50/30/20 system might be sufficient for you. However, if your leisure spending has gotten out of control, you might want to consider the envelope system.

3. Cut back on excess spending to focus on financial goals
Financial goals can range from emergency or long-term savings to investing and paying off debt. Everyone’s finances look different, so everyone’s financial goals will also look different.

One area that should not be overlooked is creating an emergency fund. This stash acts as a buffer for life’s mishaps and emergencies. Not having an emergency fund places you in a position to reach for credit cards or overdraft when things come up (and they almost always do). Experts recommend that you keep at least six months worth of fixed expenses in an emergency fund, though this amount varies based on factors like job security and family size.

By cutting down on excessive spending, you can also put money away for longer term projects or plans, such as retirement, a kitchen remodel, a week-long vacation, or paying down debts. Monthly payments on debts—such as minimum credit card payments, auto loans, or student loans—are considered fixed expenses, but if you’d like to pay down debts by more than the minimum payment each month, consider reducing or eliminating some unnecessary expenses.

If your current take-home pay and cutting back won’t allow you to save and plan for the future that you’d like, consider getting a side hustle to make extra money. There are a number of avenues for earning a quick buck, some of which are becoming an online virtual assistant or driving for a rideshare app. When in doubt, there are budget apps to help you track and optimize your income and how it is allocated to monthly expenses.

Sample Budget

This sample is based on the average American income of $31,133. 

In Conclusion

Creating a budget does not have to be a headache. First and foremost, it should be sustainable. This might mean making a budget that aligns with your current lifestyle or possibly adjusting your lifestyle if your financial situation is not currently working for you. 

Once you make a solid master budget, you should revisit your strategies and update it periodically. Sticking to your budget enables you to have greater financial stability and helps you reach your financial goals.

Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $13 million in bank and credit card fee refunds—and we’re just getting started.

*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.

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