Understanding how to budget money is an important part of being smart and achieving financial success. Creating a monthly budget can help you track (and modify) spending habits, keep tabs on your income, plan to save for future purchases, and ultimately, meet your financial goals.
It takes time to figure out how much money you should allocate to your core needs, wants, and savings plan. But when you make a monthly budget, you’ll be sure to get the most out of what’s available each month. With our step-by-step guide, it doesn’t have to be complicated! From understanding the basics behind creating a budget to learning how to stick with it, keep reading to hear everything you need to know about how to make a budget that fits into your lifestyle today!
What is a Monthly Budget?
When you make monthly budgets, you’re simply creating an organized plan for managing your income and expenses. Budgets help you understand how much money you have coming in each month and what bills and other costs you need to pay. They also allow you to set aside money for savings or other goals, like buying a house or going on vacation.
How to Figure Out Your Budget in 7 Steps
Though it might feel overwhelming when you start, creating a budget doesn’t have to be super stressful. All it takes is simple math and a willingness to track your spending habits. Here are seven steps that can help get you started.
1. Determine your total income (after taxes)
The first step in learning to budget monthly is figuring out how much you make each month after taxes. This might include:
- Wages from work
- Child support
- Alimony payments
- Social Security benefits
- Pensions
- Any other sources of income
Knowing this number will give you an idea of what monthly expenses you can afford.
2. Figure out what your monthly expenses are
Once you know how much money comes in each month, it’s time to figure out your monthly expenses. Think about things like:
- Rent/mortgage payments
- Car payments
- Insurance premiums
- Utility bills
- Daycare expenses if you’re a parent
- Tuition or school-related expenses
- Gas
- Food costs
- What you spend on entertainment – like going to movies or eating at restaurants
Be sure to include all recurring expenses so everything is on the list.
3. Figure out what your annual expenses are
In addition to monthly expenses, most people have some annual costs to factor into the equation, too. For example, think about holiday gifts for family members or travel plans for vacation. You must think about regular monthly costs and the ones that come up less frequently throughout the year. To be effective, you don’t want to forget anything when you’re trying to budget for monthly expenses.
4. Figure out your goals for saving
Now that you’ve accounted for all your necessary living expenditures, it’s time to think about your goals for saving. Whether building an emergency fund over time with small deposits every paycheck or investing more aggressively towards retirement planning, your specific savings targets should always factor into an overall budget. Having extra funds available down the road is essential if you want financial security now and in the future.
5. Figure out what you pay towards debt
If you’ve accrued any type of debt, use your budget to manage it. Whether it’s credit cards, student loans, medical bills, or anything else, planning to pay your debt down or off is a critical part of budgeting. Allocating funds toward paying off debts quickly and efficiently should always take priority before spending on unnecessary things. Reducing your debt load sooner rather than later will free up more cash flow in future months, allowing you greater flexibility with discretionary spending habits.
6. Figure out how much “fun money” you need
Finally, once you’ve mapped out living expenses, savings, and debt repayment goals, be sure to set aside some additional funds for fun activities. Do you want to have money for occasional shopping trips, weekend getaways, or dinner dates? Budget for them. Having something set aside, that’s designated for enjoyment, means you can enjoy guilt-free pleasure, knowing you didn’t go financially overboard.
7. Use your budget!
Following the steps we’ve outlined here, you can create a budget that works for your lifestyle and financial goals. Now let’s look at how to stick to it.
How to Stick to Your Budget
Sticking to a budget is one of the most important steps to managing your finances. It’s easy to feel overwhelmed by all bills, expenses, and other financial obligations that come with life. But having a plan for how you’ll spend and save each month can help keep you on track. Use the following tips to stick to your monthly budget.
Set goals: Before creating your budget, you should set goals. Think about what kind of lifestyle you want and what future milestones or purchases you’d like to make. This offers direction, so you can create a monthly budget that directly aligns with your long-term plans.
Track your spending: Keeping track of where every dollar goes is essential if you want to stick to a budget.
Create categories: Once you’ve tracked where your money has been going, create categories within your budget based on those expenses – housing costs, food/groceries, transportation, spending money are great places to start. This helps you break down significant items into smaller chunks, making them more manageable. It also might give you some insight into areas where you can save more by cutting back on unnecessary spending.
Set limits: Try setting limits within each category, depending on how much money is left after you pay fixed expenses like rent or mortgage, utilities, and car payments. Some simple tricks that can help include:
- Automating payments
- Setting up accounts so funds are transferred automatically from checking into savings at predetermined intervals
These are great ways to help ensure there’s enough money left each month without having to worry about manually transferring funds all month long.
Review and revise regularly: Take some time once a week (or even month) to sit down and review everything again. Make sure nothing’s changed, and adjust accordingly whenever needed.
Create Your Budget and Start Saving Today!
Sticking to a budget can help you save money and reach your financial goals. With the right plan in place, you can start saving for the future today.
Remember, creating a monthly budget doesn’t have to be daunting. Following the simple steps covered here, anyone can begin progressing toward long-term financial success.
If you have questions about creating budgets, reach out . We’re here and ready to help you get started on your journey towards financial freedom.