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Short Answer: How to Create a Budget

Short Answer: How to Create a Budget

Editor's note: This article originally ran on Feb. 12, 2021.

You got a new job, and you’re out on your own. But independence comes at a price.

Figuring out your budget now and learning to stick with it will save you some pain down the road.

To come up with a budget, you need to map out your paycheck.

Uncle Sam gets paid first. You’ll see that a slice of your paycheck goes to the government. Pre-tax deductions like retirement plan contributions and health insurance come out next.

Now you have your net pay--it's time to think about your survival expenses.

First off: housing. General rule of thumb is that you should spend no more than 30% of your pretax income on housing. Morningstar’s Karen Wallace says that that number includes utilities.

A great way to save money on housing is finding roommates. There’s no shame in living with your parents or relatives if that’s an option for you.

Next comes food. You have to think about how much you spend each month on eating--both going out and grocery shopping. Cooking meals at home can help you stretch your money.

Now that housing and food are taken care of, you have to plan for the unexpected. Try to set aside 10% of take-home pay each month in an emergency fund.

Now here’s your chance to figure out what other expenses are important to you. Think about things like commuting, your phone bill, and entertainment. You might also consider how much you spend on health and wellness, and online shopping.

If it’s important to you, plan for it, and keep track of what you spend.

Online paycheck calculators and money-tracking apps make creating a budget easy--no mental math necessary.

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About the Author

Margaret Giles

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Margaret Giles is a content development editor for Morningstar. With a focus on individual investors, she supports digital content experiences that cover a range of topics, including portfolio decisions and other personal finance questions.

Giles joined Morningstar's editorial team in 2019 as a data journalist for She transitioned to her current position in content development in 2023. Giles holds bachelor's degrees in economics and Spanish from Grinnell College.

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