How to Make a Monthly Budget
Many people cringe when they hear the word “budget.” They assume that budgeting is too complicated or that it’s only necessary for certain situations. The reality, though, is that this notion couldn’t be further from the truth!
Creating a budget allows you to tell your money where to go. And while sticking to a spending plan requires discipline, doing so can help you achieve financial independence in the long run. But it starts with having the right plan in place.
Here’s how to make a monthly budget that puts you in charge of your money.
Determine your income
Let’s be clear: we’re referring to the take-home pay for you and your spouse (if applicable). This figure should include full-time jobs, as well as any side gigs or Social Security checks. Basically, if it’s money that’s deposited into your bank account, it counts as income.
Calculate your expenses
Now’s the time to add up your expenses. Groceries, transportation, and regular bills (rent/mortgage, utilities, student loans, etc.) fall under this category. Of course, you’ll also want to account for the occasional splurge or night out with friends.
Subtract your fixed expenses from your total income
This step can be eye-opening for a lot of people, and that’s okay! If you do the math and the number is greater than zero, you at least have some funds available at the end of the month. However, if the amount is less than zero, that means you’re spending more than you make.
Trim your budget where you can
Say you went through the above steps and found that you have an extra $100 to work with. Sure, it’s a good start. But imagine the additional financial flexibility if you could create another $400 in monthly savings.
This is where the importance of slashing expenses comes into play. Take a long look at your list of expenses and see what could be cut. Perhaps it’s a cable/subscription service, a gym membership, or those daily coffee runs before work.
Now, what’s the course of action if you find yourself in the negative after crunching the numbers? You’ll likely have to get creative with adjusting your budget. This means shopping around for cheaper insurance, eliminating most unnecessary spending, and maybe even exploring a mortgage refinance.
Be mindful of your specific goals
No two budgets are the same. Granted, you may share your neighbor’s financial goal of building an emergency savings account. But how the two of you get there in terms of budgeting will be different.
That’s why we suggest always having your money goals top of mind. Once you trim your budget and start to see the savings, apply it all toward what you’re trying to achieve. Aside from emergency savings, this could also be a lower debt burden or down payment fund.
See how you’re doing
This can only be done by tracking all of your expenses. Feel free to log your purchases in a way that works best for you, whether that’s daily or weekly. It might seem like a pain at first, but you’ll quickly figure out that monitoring your spending gives you an accurate snapshot of your financial picture.
Make changes as needed
You’re probably going to have several different monthly budgets throughout the year. For example, it’s a good idea to begin saving for the holiday season several months in advance. The same concept holds true if you have an annual insurance premium due in the summer.
Remember that your budget is fluid. Though you can spend countless hours perfecting your money plan, things will happen that are out of your control. So establish a buffer by setting money aside each month — the funds should be earmarked for doctor’s appointments, oil changes, etc.
How to budget money on low income
Just because you may not earn a high salary doesn’t mean you can’t get ahead with your money. Here are a few tips for budgeting on a low income.
Land a second job
How would you like to make another $500 or more each month? The extra earning potential is there as a rideshare driver, dog walker, or freelancer. Don’t forget to put every penny you receive from a second job toward your financial goal.
Ask for a promotion
Work promotions are game-changers in the budgeting world. A new, higher-paying position instantly provides breathing room for your family. Just be sure to make a good case for a promotion with your employer.
Sell your stuff
Think of this as a last resort. If you’re able to get a few bucks for an outfit you’ve never worn or near-mint condition collectibles, do it. Selling unwanted items has never been easier.
Helping you reach your financial goals
Managing your money takes time. But once you have a grip on your finances, you can look ahead to becoming a homeowner. Keep in mind, though, that you’ll need to create a budget then, too!