How to Budget Monthly in 5 easy steps

Published on January 6, 2020 by Lauren
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  • Does even saying the word “budget” send shivers down your spine? If you’re overwhelmed by the thought of creating one, have no fear: Here’s how to budget monthly.

    Creating a budget doesn’t have to be a daunting task. Yes, it can have huge positive effects that trickle into every part of your life, but learning how to budget doesn’t have to be hard.

    The key is to break the process down into smaller pieces. 

    By focusing on one part of your monthly budget at a time, you’ll develop strong financial habits to help you achieve your goals.

    How to Budget Monthly

    How to Budget Monthly:

    1.) Do a self-assessment to find a budgeting system.

    Your values and goals play a major role in how you manage your money. Do a financial self-assessment to figure out where you are and where you want to go.

    If you’re in debt, you may want a zero-based budget or one that focuses on using only cash so you’re not tempted to overspend with your credit or debit card.  Learn how to start a cash budget.

    A more flexible budgeting method, such as the 50/20/30 budget, might be better if you don’t want to get bogged down in the details.

    You also should think about whether you want to track your budget manually or use a digital option

    The Personal Finance Planner is a great option to track with pen and paper, but it also complements a digital option such as an app or online budgeting software.

    2.) Figure out your after-tax income.

    You must know how much money you have to work with before you make a budget. Figuring out your after-tax income is easy if you have an old check stub lying around. 

    You could also review your bank statement or log in to online banking to see what your last deposit was.

    If you have automatic deductions, consider adding them back in to have a clear picture of what you’re saving and spending. For instance, you could classify your 401(k) contributions as savings or track the money you spend on health and life insurance as an expense in your budget.

    Finally, don’t forget any money you’re making from a side hustle. This extra income boost can make a big difference in how you plan your monthly budget.

    3.) List your monthly expenses.

    Expenses can make or break your budget. No matter how much money you earn, you’re setting yourself up for financial failure if you try to live above your means. 

    That’s why keeping your expenses below your income every month is essential.

    Add up your monthly expenses to see where you stand. The easiest place to start is with fixed costs because those don’t change from month to month.

    Fixed expenses can include:

      • Rent or mortgage
      • Utility bills
      • Insurance costs
      • Loan payments
      • Debt payments

    Once you list your fixed expenses, think about the things you buy each month that have a variable cost, such as:

    • Groceries
    • Personal care items
    • Parking
    • Daycare
    • Eating out
    • Entertainment
    • Clothing

    4.) List your short and long term money goals.

    Money goals are personal objectives you hope to achieve in the future and should become a regular part of your monthly budget. Otherwise, you risk being stuck in the cycle of living paycheck to paycheck and never seeing your dreams come true.

    Short term goals typically are those you can reach in the next five years. You might want to build an emergency fund, save for a vacation, or pay off debt.

    Depending on how much debt you have, paying off debt might be more of a long term goal since it could take more than five years.

    Financial independence and early retirement are other long term savings goal you may strive for.

    Make room for your financial goals in your monthly budget to help make them a reality.

    5. Make a budget and track your spending.

    By this step, you have a good idea of what your income and expenses are and have decided on a budgeting system. Now, it’s time to put your monthly budget together.

    Keep in mind that every month is different. You’ll need to create a new budget for each new month to account for unique spendings such as for anniversary gifts, school pictures, or membership fees.

    Use your financial planner or a budgeting app to track your spending so you’re sure to stay within your budget limits.

    After all that hard work, you’d think your budget was good to go. But things can change. 

    If your electricity bill is higher than expected, you’ll need to move money around in your budget to make up for the extra cost.

    Just remember there’s no such thing as a perfect budget. While some months will be easy, other months can bring unexpected car repairs or medical bills that can throw your budget off course.

    No matter what happens, you’re in control of your money and can make your goals a reality with a monthly budget.

     

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