7 Steps for Creating a Healthy Personal Budget

7 Steps for Creating a Healthy Personal Budget

Are you hoping to be smarter with your money, save more, and spend less? Don't stress; we have a helpful step-by-step guide to better money management. Creating a budget—and sticking to it—is an admirable goal that will make a difference in your financial health. Read on to learn about starting a healthy personal budget and how choosing the correct bank account can help you with your goals. 

Calculate Your Net Income

Start by calculating your net income. Refrain from basing your numbers on your annual salary because that's not an accurate reflection of your net income. Instead, take your wages and factor in retirement, taxes, and insurance deductions. By accounting for these deductions, you avoid putting yourself at risk for overspending.

If you have side hustles, factor in the income from those as well. If your income is irregular, keep track of how it changes monthly and use your best estimate.

Determine Your Monthly Expenses

Estimate your monthly expenses by paying attention to your current month-to-month spending habits. You can break these down into different types of costs, including:

  • Fixed Expenses: These stay the same from month to month. Examples include mortgage payments, rent, utilities, car payments, and more.
  • Variable Expenses: These are expenses you'll likely have to estimate, such as groceries, gas, and entertainment. Additionally, some bills, like utilities, change monthly. Estimate as accurately as possible with your recurring variable expenses.
  • Wants vs Needs: Fixed expenses generally fit into the needs category. However, variable expenses are often either a want or a need. By understanding your financial behaviors, you can make more informed decisions that align with your financial goals. For instance, you may be prone to impulse buying at the grocery store when you are hungry and always spend an extra $10 that you shouldn't. Being aware of these habit loops and work to address them. This will enhance your budgeting abilities.

Track Your Spending Habits

Quick and easy access to finances is a game changer in today's age. Check out these mobile and desktop apps that help you track spending. However, if you prefer a more old-school approach, jot down your spending on a spreadsheet. The key to tracking expenses is finding the best tools and methods that work for you. No matter which way you do it, by tracking your expenses, you will have clear records of spending trends and accurate data to work from. 

Set Realistic Goals

Instead of putting unrealistic expectations and pressure on yourself, set attainable goals. Yes, in an ideal world, we could get by while spending as little as possible and paying off our debts with a snap of our fingers. However, the best way to achieve success is by creating practical goals that challenge you to spend your money wisely. We're human beings, after all, living in a world where things are often too expensive while dealing with problems like inflation.

Start by breaking your specific goals into two categories: short-term and long-term. Short-term plans usually take one to three years to achieve. Long-term goals can take decades. For instance, if you get an early start saving for your children's education, you could build a fund for over ten years, making it a long-term goal. On the other hand, saving up for a new snowboard this winter is considered a short-term goal. 

Why does it help to name and specify goals? Because it gives you something to aim for. But it also is a vital part of developing a healthy personal budget. For instance, if you plan to set aside a certain amount of money every month to pay off your student loans, you'll have to factor that into your net income calculation. And it will likely have an impact on your spending.

50/30/20 Rule

Consider the tried-and-true healthy personal budgeting technique known as the 50/30/20 Rule. This formula accommodates the expense categories we listed above and your financial goals. The breakdown is as follows:

  • 50 percent of your net monthly income goes toward needed expenses, both fixed and variable, including utilities, mortgage payments, transportation costs, food, and anything you literally cannot live without.
  • 30 Percent goes toward the want expense categories—the things you'd rather not live without but know you can if you need to—including entertainment, new clothes, eating out, etc.
  • 20 Percent is set aside for your various financial goals. Use this towards aspirational purchases like buying a new car or putting a down payment on a home.

Review Your Budget Periodically

Review your budget at least annually to accommodate lifestyle changes. For instance, if you get a significant raise or move up to a better job, your net income will change, and you'll need to adjust your budget. Major financial changes can drastically impact your budget, so review your budget after events like paying off a loan, getting married, and other life events. 

Choose the Right Checking Account So You Get the Most Out of Your Money

Your checking account should help your finances, not hinder them. If your current checking account is not helping you achieve a healthy personal budget, it may be time to switch.

Paying annual premiums, ATM fees, minimum balance penalties, and other expenses can quickly subtract from the money you have to work within your budget. Instead, look for checking accounts that are free to maintain. Financial institutions like Vermont Federal Credit Union, offer checking accounts with features that can benefit your budget!

Why not have a checking account that makes your money work for you? Reward programs can give you money back for ATM withdrawals, overdraft protection, round-up savings features, higher interest rates, and more. Those rewards can add up, even to hundreds of dollars per year helping you maintain a healthy personal budget. Your rewards can also help you fulfill your financial goals sooner than expected!

At Vermont Federal Credit Union, our Reward Checking program can earn members up to $300 in annual interest. You can find more information on Vermont Federal Credit Union by exploring our website. You'll find the current rates, qualifications needed to maximize your rewards, and other online resources. You can also easily apply online to open an account with us. Our member benefits and resources will ensure your budget stays right on track.


Vermont Federal Credit Union is a $900 million-plus full-service, not-for-profit, cooperative financial institution that has served Vermonters for more than 70 years, with eight locations currently serving over 50,000 members. Members are part of a cooperative, meaning they share ownership in the Credit Union and elect a volunteer board of directors. Vermont Federal Credit Union provides membership to anyone who lives, works, worships, or attends school in Vermont. Vermont Federal Credit Union is committed to supporting its communities and helping Vermonters prosper, no matter where they may be on life’s journey. Learn more about Vermont Federal Credit Union. 

Stay up to date with all the latest content.

Subscribe to Our Newsletter