Sure you want to get control of your money, but starting a budget sounds so overwhelming. Here are tips to make creating a monthly budget simple and stress-free. Get excited about saving money, paying down your debt, and feeling more peace about your financial situation.
This post may contain affiliate links. Please read my disclosure for more info.
Thanks to DebtConsolidation.com for sponsoring this post.
How Do I Make a Monthly Budget
A monthly budget can be an important piece in managing your family’s finances.
If you want to make budget shortages a thing of the past, then you should consider implementing a spending plan to allocate your financial resources and track where every penny goes each month.
In simple terms a monthly budget involves tracking money coming in and money going out over the course of a month.
Before you start creating a monthly budget, get a copy of your bank statements for the last few months. This will give you accurate amounts when recording income and expenses. Use the actual numbers when you set up your budget – not estimates rounded up (or down!) in your head.
Creating a monthly budget can take an hour or two to set up depending on your financial situation. But once your budget is set up, it will be a breeze to record and will take minutes a week to track.
Related reading: 8 Clever Budget Tips for Families That Will Save You Tons of Money
Creating a Monthly Budget: Figure out Where You Are Financially
Here is a simple step-by-step way to create a monthly budget if you have never made one before.
1. Figure Out Your Net Income
Before you can begin creating a monthly budget, you have to know exactly how much money you have to work with. Calculate your total earnings, after taxes, so that you know what your income will be. Only include income that you know you can count on.
2. Calculate Your Expenses
Compile a list of your monthly expenses. Take everything into account, including your rent or mortgage, utility costs, car payment or transportation, debt repayment, entertainment, and any money you might spend on hobbies.
Don’t forget to include the cost of food for yourself, your children, and any pets you might have. Any expense that tends to occur every month should go into this category.
3. Subtract Expenses From Income
Subtract your expenses from your income. This is the amount of money you’ll have left over after covering your monthly payments.
Take a look at the month ahead and see if you can predict any expenses that do not occur every month. These expenses might include car or home repairs, dental or medical expenses, trips and vacations, gifts, social events, or clothing. Subtract these expenses as well, and take a look at the amount you have left over.
4. What To Do With The Remainder
The remaining amount is called your ‘cushion.’ This is the money that would be available in an emergency in any given month. As a general rule, you should have 10% or so of your monthly income left after all expenses. If no ‘emergency’ expenses arise, you should save this money, slowly building up a savings account for you and your family.
Read this for how much money you should save for an emergency fund.
What Happens If In Creating A Monthly Budget You End Up With No Cushion
What happens if your spending plan ends up on the negative side? Or you don’t have a cushion? You’ll have to rework your plan. Take a look at your expenses and see if there are any areas you might be able to cut back in. While you probably can’t do much about your mortgage or rent, other expenses may be well within your control.
If cutting back doesn’t do it, you may have to find a way to increase your income. Perhaps a new job or taking on a second job will do the trick. Use whatever method you think will allow you to come up with a balanced budget that will get you through the month.
Resources For Increasing Your Income
Creating a Monthly Budget: How to Set It up So You Follow Your Budget
Once you have your monthly budget plan, it’s time to get it to set it in motion. This isn’t always as easy as it seems. Staying on track throughout the month can be challenging, but there are several systems you can use to try to control your own spending and follow your plan.
1. Creating a Monthly Budget Using Cash Envelopes
Many people find using envelopes a useful solution.
Gather a few envelopes and label them with these categories, then put the money for each category in the envelopes. As you go through the month, you’ll spend the money in your envelopes.
When an envelope is empty, you have nothing more to spend on that category.
For example, if you want to go out to see a movie, but have nothing left in you ‘entertainment’ envelope, then you don’t get to see the movie. This is a simple and effective way to make sure you stick to your spending plan.
Related reading: Personal Budgeting: 3 Powerful Tips to Get Control of Your Money
2. Use Your Card But Track Your Spending
For those who don’t like cash, you can use your own bank account to track your spending. However, you have to keep very careful track of your purchases.
Consider keeping a notebook or spreadsheet detailing your spending. A simple way to do this is creating a monthly budget in Excel.
The same rules apply here as with the envelopes: once you reach your spending limit for a certain category, you can’t spend any more.
This method does take a little more willpower than the envelope method, and it is quite easy to overspend.
Creating a Monthly Budget: Using Habit Stacking
Once you get into the habit of tracking your spending, it takes minutes a week. A trick to get yourself to remember to get out that notebook or Excel sheet is to habit stack. This means you pair the new habit (tracking your spending) with a habit you already do.
You could try entering your spending for the day when you have dessert at night, or before you brush your teeth. Before long, the new habit becomes as engrained as the old habit, and you are finding it easy to track your monthly budget.
Adjust Your Monthly Budget When Needed
A monthly spending plan is a useful tool for controlling your spending. Make sure you plan well in advance for larger expenses, and track every penny. Also remember that no two months are the same.
If you need to adjust your financial plan each month, feel free to do so. The point of a spending plan or budget is to help you cope with financial reality, not lock you into something that is unrealistic.
Need More Money Help? Get Sound Financial Advice Tips
If you are swimming in debt or are overwhelmed by the idea of creating a monthly budget when you have debt, you might be wondering where to get financial advice beyond this article.
Please check out these resources:
- How To Get Out of Debt – 10 Practical and Mindset Tips
- Yes You Can Eliminate Credit Card Debt: 5 Important Strategies You Need
And if you’d like to speak confidentially with a financial expert, you can find more information here.