New year, new budget: how to create one for your household (2024)

If getting your finances in order is top of mind for the new year, a great place to start is creating a budget. A budget — which, according to Investopedia, "is simply a spending plan that takes into account estimated current and future income and expenses for a specified future time period, usually a year" — can boost your financial life in myriad ways, including by preventing overspending, helping you reach long-term financial goals, and ensuring you're saving enough.

Making a budget may seem like an arduous undertaking. But, as CNBC Select reassures, actually "it's not that difficult to create a budget" — and "once you have one, the bulk of the work is done and you can make minor tweaks as your spending habits or income change."

Step one: Figure out your net income

The first step in making a budget is determining how much money you bring in each month. This of course includes a paycheck from your employer but also any other money you make, such as through a side hustle. It's most helpful to figure out your net income, which, as Better Money Habits explains, is "your take-home pay — total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance."

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Don't have a predictable income because you're a freelancer or gig worker? "Make sure to keep detailed notes of your contracts and pay in order to help manage irregular income," advises Better Money Habits.

Step two: Determine your fixed and variable expenses

Next, make a complete list of the expenses you have each month. This will likely include things like rent or mortgage payments, insurance, utilities, groceries, gym memberships, streaming subscriptions, and transportation. An easy way to figure out your monthly costs is "by taking a look at your bank and credit card statements over the past three to six months to get an idea of what you typically spend each month," suggests Experian.

Once you have that list down, differentiate between your fixed expenses (which, per CNBC Select, are "bills you can't avoid") and your variable expenses, which are more discretionary. By divvying these up, it will become more apparent where you could cut back if necessary.

Step three: Identify your goals

After you've figured out your monthly income and expenses, it's time to crunch some numbers. Subtract your expenses from your income to see how much (if any) is currently left over.

Knowing how you've been spending your income serves as a great launching point to "set goals on how you want to manage your money going forward," per Experian. Want to pay down debt faster? You can use this budgeting exercise to "set a goal for how much you'll put toward debt payments each month, then set goals to cut spending in certain categories to make sure it happens," explains Experian.

Just make sure you don't get too lofty with your goals — as Experian notes, "if you set your sights too high, it could be difficult to stay motivated when things don't work the way you want." Instead, explains Experian, "set specific, measurable, achievable, realistic and timely (SMART) goals that require you to stretch a little, but keep in mind that it can take time to develop the habits you want to have."

Step four: Track your expenses and adjust as needed

Your work isn't done once your budget is made—you'll also need to make sure you're sticking to it. As Experian puts it, "tracking your income and setting goals for how you want to spend your money is one thing, but it won't do much good if you don't keep track of your spending." You might consider downloading a budgeting app to make this easier, or simply set up a spreadsheet.

Beyond holding yourself accountable, "tracking your spending can help you test your assumptions and goals and give you an idea of how to adjust them in future months," per Experian. Plan on revisiting your budget ahead each month to see what changes you may need to make for the coming month —and how you're progressing towards your goals.