7 Simple Steps to Creating a Budget to Save $500 Per Month

Posted Feb 01, 2021 | Chris Petrie

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Did you know that almost 80% of people are living paycheck to paycheck? In fact, since 2006 the paycheck-to-paycheck lifestyle has increased every year from 65% in 2006 to almost 80% today.

What if those same people could stop living paycheck to paycheck and actually save money?

The simple fact is those who choose to create a budget and stick to it will not only stop the paycheck-to-paycheck lifestyle — they will on average save $500 per month.

Over the next few minutes, I am going to walk you step-by-step in creating a very simple and effective budget. I am also going to give you a free budget tool to use and show you how to use it.

Now, let’s start with step one.

Free Budget Templates: Grab the budgeting templates and download the how-to-budget mini course here.

Step 1: Go Back 90 Days

As the saying goes; what gets measured gets managed. The first step is to determine exactly what your money has been doing before you can tell it what to do. 

You are going to print all bank statements for the past 90 days (three months).

If you only use a checking account and a debit card, then you will only be printing three monthly statements.

However, if you use a credit card (or multiple credit cards), you will need to print off 90 days worth of statements for all accounts.

Step 2: Make Categories

Once you have 90 days worth of bank statements in front of you, it’s time to create categories. This is going to make budgeting much easier.

Once you start going through your expenses, you will start to notice expenses that you can put into categories. Examples could include groceries, fuel, dining out, entertainment, shopping or health.

The fewer the categories, the better. No more than 20 categories is ideal.

Average of 90 Days

With each category, you are going to take the average of the 90 days worth of expenses. For example, if you have $1,500 total expenses for groceries, then your monthly average is going to be $500. 

The Fixed Expenses

Circle or highlight all expenses that are the same each month. This may be your rent, mortgage, cable, cell phone, car payment, insurance, or basically anything you know is going to be the same amount each month.

Step 3: Enter Into Your Budget

Once you have gone back through 90 days and created categories for your expenses, it’s time to start entering those expenses into your actual budget.

Start with Your Take-Home Pay

The first number you need is your projected monthly take-home pay. You can think of this as the amount of money that hits your checking account within the month.

For example, your income may be $80,000 per year, but your take home pay after taxes and all deductions may be closer to $50,000 per year. Therefore your take-home pay would be $4,333 per month instead of $6,667.

Transfer Categories to Your New Budget

Remember, in step one you went back 90 days and in step two you created categories based on those 90 days worth of transactions.

From here, you will now enter in the categories you created and the monthly average for each category. 

Step 4: Zero Out Your Budget

Now it’s time to create a zero-based budget. 

All this means is you will have a plan for every dollar that comes in as take-home pay. Whether your income is $2,000 or $20,000 per month, every single dollar will be told what to do before you actually spend it.

Expenses Will Be Higher Than Income

Ninety-nine out of hundred times, your average monthly expenses will be more than your take-home pay. If this happens to you, take a deep breath and realize this is completely normal. This is also why over 75% of people report they are living paycheck to paycheck.

This is where you will go back and determine the needs versus the wants.

There is no right or wrong way when going through the needs versus the wants. It’s one hundred percent up to you. The bottom line is your take-home pay minus all of your expenses must equal zero.

Take Home Pay  —  Expenses = ZERO

Step 5: Follow Your Plan

Once you have created your zero based budget, it’s now time to follow your plan. Remember, this is the play YOU created for YOUR MONEY.

Every time you make a purchase or a payment is made, you will record it in your new budget. 

Best Practice: Always ask for a receipt. Then at the end of the day, take the 2-3 minutes and add them into your budget.

Step 6: Make Adjustments

The chances of you being perfect your first month are zero percent. In fact you will never be perfect — you’ll become really good, but never perfect.

If you remember from steps one and two, you printed off 90 days worth of bank statements, made categories, and averaged the expenses into monthly amounts. This was to create a baseline based on average spending habits. 

Therefore, this does not mean you’re going to be perfect within every category.

Make Progress, Not Perfection

Here is a fact: You will have at least 37 emergency budget meetings within that first month. Maybe you underestimated groceries (everyone always does) and overestimated fuel for your cars.

Or you may have allocated too much for dining out and not enough for shopping. You may even realize you need a separate category just for Amazon.

If this is you, keep in mind this is one hundred percent normal and you are not a failure, not weird, and doing everything right.

Click Here for the Free Budget Mini Course: Download the free budget forms and then watch me show you exactly how create your own budget!

Step 7: Rinse and Repeat

Your first month is a trial month. It’s not going to be even close to perfect and you’re going to feel like a complete failure at times. 

Don’t give up.

Month one won’t go great, month two will be better, and month three will actually be easy. Give yourself 90 days to get comfortable with your budget.

The Result

The biggest raise you will ever receive in your working lifetime is the day you decide to live on a budget.

The average student of Money Peach saves $500 per month by simply creating a plan for every dollar that comes into their life. At the end of the year, this is $6,000 saved. In just five years, $30,000 is saved without ever making more money.

What could you do with an extra $500 per month? Pay off debt faster? Save for a big purchase? Travel more? Live life without the stress of money?

It’s your turn to get the money right. You got this my friend!

Frequently Asked Questions

When should I create my budget?

Right now.

But, in the future you always want to create your budget BEFORE the month actually starts. The idea is you will create a plan for every dollar that comes into your life before you actually receive and spend it.

Budgeting is proactive versus reactive. 

When you create a budget before the month begins, you are now telling your money what to do and where to go instead of wondering where it all went.

Does it matter when I get paid?


Whether you are paid once weekly, bi-weekly, the 1st and the 15th, or once-per-month does not matter. Just add up how much you get paid between the 1st and the last day of the month, and then use that as your income (take-home-pay) for your budget.

Why budget on a monthly schedule versus a pay period schedule?

Your life is already set up on a monthly schedule. Your mortgage or rent, your bills, insurance, auto payments and everything else in life is already set up to be paid once per month. 

We are just going to follow the plan that has already been created for us.

Simplicity is the key to creating and sticking to a budget long-term. The goal is to not only create a budget, but to follow the plan we created for our money every month going forward.

What if I don’t get paid the same amount each month?

This is completely normal and it’s called irregular income budgeting. Just like you did in step one and two where you averaged out your 90-days worth of bank statements, you will do the same for your income.

Example: Month 1 you earn $4,000, month 2 you earn $8,000 and month 3 you don’t earn any month at all. Therefore, your average income will be $4,000. 

It would be wise to save the extra money from month 2 in a savings account earmarked for your income. This way you have something to draw from in a down month.

Keep in mind — you will take a new 90-day rolling average at the start of each month.

Is this the only budgeting option available?

No, there are plenty of other budget strategies out there, although I think this is the best because it can be used for everyone. However, another popular budgeting method was created by Elizabeth Warren and is the 50-30-20 Budget.

If I plan on using every dollar I earn, wouldn’t my checking account be zero?

You will definitely need to create a “buffer” inside your checking account so you never come close to zero (or ever overdraft). 

Pro Tip: Put the due date next to all of your bills (your fixed expenses) inside your budget. Now, take a look at your budget and you will notice you will have a period of 7-10 days where the majority of your monthly expenses will come out. This allows you to determine how much of a buffer you will need.

Example: You get paid $2,500 on the 1st and 15th of the month. Between the 1st and the 7th of the month, your bills and monthly expenses will add up to be $2,700 per month. Now you can see you need at least $200 extra for those first two weeks in order to avoid an overdraft. A best practice would be to set aside an extra $500 in your checking account so you know your checking account will always stay above a $300 minimum balance.

What if I don’t have enough money to zero-out my budget?

This is completely normal and happens to the majority of people who first create a budget. This is also why over 75% of people are living paycheck to paycheck.

You will need to go back through the Needs vs Wants section of the worksheet from the mini course. This will be short-term painful for the long-term gain.

If I go over budget, how do I account for that next month?

You will never spend exactly what your income is within any given month. Your life has too many moving parts to literally spend exactly what you earn inside a 30-day period.

One month you may have overspent and the following month you may have underspent.

When this happens, simply add the unspent amount (or subtract the overspent amount) from your income the following month.

Example: At the end of April, you see you overspent by $100. Next month you would simply subtract $100 from your income and then zero out your budget.

Get the Budget Templates Right Here

Now that you have a pretty good idea of how a budget works, I am going to give you the budget templates and walk you step-by-step with how to use them. If you have any questions at all, please post in the comments section below.

Good luck and congratulations on creating your budget!

Chris Peach Author 150x150

Chris Petrie

Chris (Peach) Petrie is a personal finance expert, money coach, speaker and podcaster.

In 2011, Chris and his family were exhausted from living paycheck-to-paycheck and facing a mountain of debt. They started going against the society standards of misbehaving with money and made the decision to take back control of their lives and money. Within seven months they paid off $52,000, started saving like crazy and began building real wealth.

The word spread fast and Chris started showing friends how to create a budget over dinner. Soon after he started showing their friends how to do the same and eventually Chris started teaching personal finance classes around the community. As the need for the classes grew, Chris launched Money Peach in 2015.

Money Peach was created to help everyday people remove the stress and fear of money by showing them how to save more, make more, and keep more of their money.

Chris Peach has been featured in places like Business Insider, The Huffington Post, Elite Daily, and CheddarTV.

When Chris isn’t at “work” he can be found at the Crossfit gym or riding on the fire truck — Chris is also a full-time firefighter in Phoenix, Arizona.

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Want to save more money and pay off debt?

Great! Grab the free budget mini course where I will give you a budget and show you exactly how to use it! The same budget I used to pay off $52k in debt, save money and build wealth!



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