How to Create a Frugal Budget

Spend Less, Save More, and Pay Down Debt

Creating a Budget

Erin Huffstetler

A well-planned budget can help you to achieve your goals to spend less, save more, and pay down debt. Creating a budget that emphasizes frugal living can help you not only meet your financial goals but also minimize unnecessary expenses.

Learn more about how to create a frugal budget—from getting started with the materials you need, to the steps you need to take, to sticking to your budget and making it a habit. You can expect to spend from one to three hours working on this budget.

What You Need

  • A list of your bills
  • Tally of your income
  • Calculator
  • Pen or pencil
  • Paper

Making Your Budget

Breaking down the budgeting process into smaller chunks can make it feel more manageable. Here are the steps to take.

Assess Your Monthly Expenses 

One of the first steps to making your frugal budget is evaluating your current monthly expenses. This may be one of the most time-consuming steps, as you'll want to be sure you're accounting for everything you need to spend money on in a month.

Monthly expenses often include rent or mortgage payments, utilities and other bills, insurance premiums, childcare costs, and more.


When making your list of your regular monthly expenses, be sure to include any money you spend on discretionary things like eating out, entertainment, and hobbies, as well as any minimum payments you have to make toward your debts.

You can use a budget form for listing your expenses if it makes the job easier.

Total Your Monthly Earnings

Calculate how much you bring home after taxes and other paycheck deductions per month, including any money you receive from investments and other forms of residual income.

Don't worry if your income varies from month to month. In that case, you may need to look at a few months to determine your average monthly earnings.

Subtract Expenses From Earnings

Next, test out the effectiveness of your current spending habits by subtracting your monthly expenses from your earnings. This will show you how much you can expect to have left at the end of the month if you were to continue your current spending habits.

Rework Your Budget

If your budget comes out negative, you have a few options. You can make more money, or you can look for ways to cut spending. Reducing spending is probably more realistic for many people.

Keep reworking your budget until your numbers work. To do this, go back over each expense, and look for places to make cuts.

Build in Money for Debt Reduction

If you have debts, your budget should already include the minimum payments that you have to make each month. Now, you need to find the money to pay down those debts.


If you're not making minimum payments on your debts, you may be increasing your debt balance and hurting your credit score. Be sure to prioritize the minimum payments.

Look at your numbers again, and determine where you are willing to make sacrifices to get out of debt.

Build in Your Savings and Investments

Now it’s time to budget money for your financial goals. Do you want an emergency fund? Retirement investments? Vacation savings? Make a list of what you hope to achieve. Then, survey your budget once more to find the money you need to in order reach those goals. If you have a lot of debt, you may need to skip this step for a while, and that’s OK—debt reduction should be your priority.

Put Your Budget to Work

Once you’ve created a budget that covers all of your monthly expenses and financial goals, it’s time to put it to the test. Try to live within your budget for a few months, and see how it feels.

Assess Your Budget

At the end of each month, look over your expenditures to see whether they match your budget. If they don’t, determine whether you need to work harder to stick to your spending plan or whether you need to rework your budget to reflect your actual spending.

Assess, and Assess Again

A frugal budget is never finished. Continue to look over your budget every month to catch areas of overspending. Then, crunch the numbers again until you’ve made it right.

Tips for Successful Budgeting

You won't always get it right, and that's OK. Try these tips for budgeting success:

  1. Be honest about your spending habits, and you’ll end up with a more realistic budget.
  2. Don’t forget to budget for fun—budgeting isn’t about total deprivation.
  3. Don’t be afraid to change your budget—a good budget is always evolving.
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