• A household budget starts with understanding your total monthly income.
  • Categorizing expenses into fixed, variable, mandatory, and discretionary helps clarify spending patterns.
  • Defining clear financial goals makes it easier to decide how to prioritize saving, spending, and debt repayment.
  • Using a structure like the 50/30/20 rule may provide a helpful starting point for building your plan.
  • Tracking your spending and reviewing your budget regularly helps ensure it stays aligned with your needs.

If money’s been a little tight, you probably already have a keen sense of when it’s coming in and when it’s going out. Even if you keep close tabs on your money, creating a formal budget may still benefit your financial health.

For one, it removes the pressure of keeping track of your finances in your head, freeing up mental real estate to pursue your other goals. It also helps you review and compare your financial options and creates positive financial habits that may help you as your income grows. 

Creating a budget is also simpler than you think. From tracking your spending to preparing for setbacks, here's how to build a budget that may help you meet your financial goals.  

Step 1: Determine Your Total Income

The first step to creating a realistic household budget is determining how much income you have to work with. Begin by identifying all reliable sources of income, such as: 

  • Primary income: Regular wages, salaries, or self-employment income.
  • Secondary income: Alimony, child support, pensions, or government benefits.
  • Other sources: Side jobs, rental income, investment dividends.

Focus on net income (the amount after taxes and deductions), as using gross numbers may give an unrealistic view of funds available to spend. 

For consistent income sources, use your most recent pay stubs to calculate monthly totals. If you have fluctuating income, such as from freelancing or gig work, calculate an average from the past three to six months. If in doubt, choose more conservative estimates. Underestimating slightly may help keep spending in check. 

Step 2: List and Categorize Your Expenses

Determine how much is going out each month, and where it's going. Start by reviewing your recent bank and credit card statements. Look back at least one to three months to spot patterns and identify regular charges. If you’re a PNC Checking customer, you can access your statements and account activity within PNC Online Banking or through the PNC mobile app.[1]

Break your expenses into two main categories:

  • Fixed expenses: These don’t change much month to month. Examples include rent or mortgage payments, insurance premiums, car payments, and student loan payments.
  • Variable expenses: These fluctuate based on usage or choices. Examples include groceries, gas, utilities, personal care, and entertainment.

Then, go deeper by categorizing each expense as either mandatory or discretionary. Mandatory expenses typically include housing, transportation, food, health care, and debt payments. Discretionary spending may include items such as dining out, subscription services, hobbies, and gifts.

This process may take some time, especially if your transactions aren’t clearly labeled. However, having a clear breakdown may reveal how your household budget aligns with actual habits and where adjustments might help.

Step 3: Set Financial Goals 

Creating a household budget you'll stick to requires looking beyond the numbers. When your budget is tied to bigger goals, it's easier to make strategic decisions about how to prioritize spending, saving, or paying down debt. 

Start by clarifying your goals by timeframe. For example:

  • Short-term (within a year): Building an emergency fund, paying off a credit card, or saving for a vacation.
  • Medium-term (1–5 years): A down payment on a home, a new vehicle, or additional education.
  • Long-term (5+ years): Retirement, future college costs, or other major life milestones.

When setting goals, be specific. Instead of “save more,” try “save $1,000 for emergency expenses in six months.” Clear goals make it easier to track your progress.

Step 4: Compare Income and Expenses

Now that you have a clear picture of income and expenses, it's time to compare the totals. Subtract your total monthly expenses from your net monthly income. If the number is positive, you may have room to put more toward savings, debt repayment, or other goals. If it’s negative, you'll need to make some adjustments before creating a workable household budget. 

First, review variable and discretionary spending. These categories often offer more flexibility for change. Consider scaling back on items such as dining out, entertainment, or subscription services. If this isn't enough, you may need to explore options such as shopping for less expensive insurance, refinancing loans, or finding ways to lower utility payments. Often, a few intentional choices may make a significant difference. 

Step 5: Create Your Budget Plan

With the background work completed, you're ready to build a household budget. Begin by deciding how much to allocate to each spending category, based on your fixed needs, flexible costs, and financial goals. If you're not sure, use the 50/30/20 rule as a starting point:

  • 50% to needs: Housing, utilities, groceries, insurance, and required debt payments.
  • 30% to wants: Non-essential spending like dining out, entertainment, or subscriptions.
  • 20% to savings and extra debt repayment: Emergency fund contributions, retirement savings, or paying more than the minimum on loans.

While this approach doesn't work for every situation, it may help you start to prioritize. If needed, adjust the percentages to better reflect your household needs. 

Step 6: Track Your Spending

Following a budget means keeping track of your statements, financial documents, and receipts. So, it's important to find an organization method that works for you. 

You can create a series of digital or physical folders in which you can store your key financial documents.

Virtual Wallet customers may use the Spending + Budgets tool in Online Banking or in the PNC Mobile app. This allows you to consolidate spending methods (debit card, credit card, bill payments, etc.) and create budgets for spending categories (education, groceries, entertainment) – all in one view. Then, you can set up alerts[2] to help keep you informed about spending, so that you’re able to stick to your budget.

You’ll also need a digital or physical calendar to keep track of your cash flow each month. Find one that works for you and start budgeting by recording your paydays and other instances of payments coming in. If you’re a Virtual Wallet customer, the built-in Virtual Wallet Calendar does this for you.

Step 7: Adjust and Review Your Budget Regularly

A household budget isn't static. Expenses change, income shifts, and goals evolve. To make sure your household budget stays relevant, set aside time every few months to review it and make adjustments as needed. 

Start by comparing actual spending to the amounts you budgeted. If you consistently overspend in one category, consider increasing that limit and reducing another. If you’re underspending in some areas, redirect the extra funds to savings or debt repayment.

Keep in mind that some months might bring extra costs. Build some flexibility into your budget, so an unexpected medical bill, car repair, or other expense doesn't throw it completely off track. 

Budgeting Creates Freedom

Budgeting gives you a clear view of what's available, what's committed, and where there's room for adjustment. This clarity creates more space to make informed choices and may relieve some anxiety about spending decisions. 

The benefits of budgeting may take some time to pay off. At first, you’ll have to invest a little extra time and energy into setting up your budget, tracking your expenses, and reviewing your finances. 

Ultimately, though, budgeting will save you time. You’ll know where your money is going, rather than having to make mental calculations throughout the month. You’ll also save hours of stress because budgeting helps you track your progress toward your goals, rather than having to guess how you’re doing.

Creating positive budgeting habits now gives you a foundation for better money management, so you can feel confident and secure in your finances at any income.