4 rules for creating a personal budget

Feb 6 · 5 min read

At its core, creating a personal budget is telling your money what to do, ideally before the start of the month. How many times have you asked yourself “Where the hell did my money go?”, or think to yourself ” I thought I had more money in my bank account”. Those statements used to run through my mind…often. I thought the answer to this problem was to make more money. I thought that by making more money I wouldn’t have to worry about where my money went, because I’d have plenty of it! I was wrong. I can’t tell you if money buys happiness, but I can tell you that money will make you more of what you already are. Do you spend alot of money? Terrible with managing a budget? Money will only magnify these challenges. Alternatively, if you’re great with money, an astute investor, or philanthropist, money will highlight these strengths. My conclusion is that more money alone will not fix poor spending habits. What fixed my spending habits and turned my income into a powerhouse was a personal budget.

Specifically, a zero-based personal budget which is a type of income and expense planning approach that allocates every dollar to an expense so that your income — expense = zero. Now, these expenses can be any category you want: fun money, vacation savings, a new dog, the expense category really doesn’t matter. The core tenant with a zero-based budget is that every dollar is allocated to an expense category. If you want to see examples of a zero-based budget, I’ve published two articles of how to create a personal budget using my actual earnings — check it out below.

Although zero-based personal budget planning is a rather mechanical activity where you ‘zero out’ your income against your personal expense categories, there are 4 pillars which serve as the foundation for a zero-based budget. All 4 pillars operate in unison like 4 legs on a chair, take one leg away and what happens to the chair? It collapses. Follow these 4 steps, and you’ll feel like you a got a raise.

Rule 1: Know every expense

It does not matter if you make $1,000 or $100,000, you need to know all of your expenses, yes even the $0.99 Apple iTunes recurring expense. For example, I have $9.93 of itunes storage expense every month. This represents 0.0005969% of an average month’s income, but I include it anyway. If you’re a little loose with cashflow like I was, this exercise will serve as a good analysis & review all of your digital < $20 subscriptions, which for me, adds up to $54.90 a month. When I first implemented a detail personal budget, I realized that I was spending well over $200 a month in digital subscriptions, and was paying for HBO-go twice. Take the time to review all of your recurring expenses, even the < $20.

Rule 2: Know the due date of each expense

When I was younger and first started making more than $100k a year, I used alot of ‘mental math’ to manage my money. Not really knowing the exact due dates of individual bills (e.g. utilities, cable) but justifying it by knowing that regardless if the bill was due on the 3rd or the 20th, I was reasonably confident that I’d have enough cash in the back to cover it. Although this works for many people, it creates a scenario in which it’s too easy to lose track of expenses while simultaneously encouraging potentially wreckless spending. To avoid this, put each expenses’ due date in the expense line item. This will also ensure you know if it’s a bill you’re paying on with paycheck 1, or paycheck 3. Know the exact date each expense is due.

Rule 3: Every dollar has a budget

Some people call this ‘zero-based budgeting’, which is a fancy way of taking every dollar of income and mapping to an expense. If you earn $11,324.56 in one month, then you would have $11,324.56 of expenses, not $10,500 or $11,300. This month, I have $16,636.53 of income, so I’ll have $16,636.53 of expenses. An easy way to manage excess income is to allocate additional earnings to a single discretionary category, in my example, the wedding. Your remaining balance (income — expense) should always equal to 0.

Rule 4: Pay your bills with your debit card

Alot of my friends and peers pay their utilities, groceries, and other living expenses with their credit card and in turn, pay off the credit card at the end of the month. This is primarily done in the pursuit of cash back or reward points. Guys this mental math and additional burden is not worth it. 1% cash would yield just $1,000 if you spend $100,000. Countless studies have shown that you spend more when you pay with credit card vs cash. You are not winning. Furthermore, it’s another transaction which needs to be reconciled and zeroed out in your excel/personal finance app of choice. You’re also supporting an industry which makes money off the backs of the poor and middle class. No thanks. Pay with your debit card and avoid the headache.


Personal finance is 80% personal and 20% finance. I like to think that making the budget is the easiest part. Enforcing the budget, agreeing on expense category budgets with your significant other, figuring out how much money you actually spending eat out every month, that’s the personal part of personal finance. Don’t give up, it took me 3 months to get an accurate picture of how much money I really spent on restaurants and groceries. With my personal finances now under control, the feeling is amazing. It’s like I gave myself a raise — for the first time in my life, I was telling my money what to do!

This story is published in Educated but Broke — a publication dedicated to helping you fight student loan and consumer debt by providing real-life, practical advice.

Subscribe to receive our top stories here.

Educated and Broke

You are too smart to be this broke.


Written by


Went to college and graduated with $170k of student loan debt. Insanity pursues @ Educated & Broke.

Educated and Broke

You are too smart to be this broke.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade