How to Create a Monthly Budget

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Learning how to create a monthly budget will help you control your spending and manage your finances. Creating a monthly budget may seem like a mundane task but the benefits are enormous.

picture of a pink wallet, money , calculator and a cup of coffee

Budgetting is important if you will like to stop living from paycheck to paycheck. It is essential that your finances and money are managed well to keep from accruing debt and enjoy life. I started creating and using a monthly budget five years ago when I was a full-time graduate student with little funds. By using a budget, I was able to track all income, expenses, and make plans for future expenses. I am not a financial coach but I will be sharing beginners’ budgeting tips to help you get started with your personal budget.

Budgeting for Beginners

Budgeting is about planning your finances. I believe in planning each day and as a teacher, I understand the importance of planning and how the lack of planning can cause chaos, destruction, and wreck your day. The same applies to your finances, if you do not plan your money, your spending habit will be chaotic and lack order. These 3 steps will help you plan and take charge of your finances.

Know your Net Income

Your net income is how much you receive after taxes and other deductions from your paycheck. Most people have automatic deductions for 401k, health insurance from the gross income. You need your Net income to make a budget. Your budget should be based on your take-home amount, which can be found in your paycheck or by checking your bank statement. This figure should be specific and income from other sources should be noted as well.

Know your Expenses

Expenses are the money you pay or spend monthly. Expenses can be fixed expenses like mortgage, rent, a car loan that remain constant every month, or variable expenses like groceries, gas, lunches, parking, gifts, that are not content and vary in amount. Write out all expenses, anything you spend money on monthly, write it out. It is important you write a detailed expense list to create a monthly budget that works.

Create your Budget

There are a lot of budgeting apps and software but I advise you to start by using a pencil and paper before using a spreadsheet or an app. Keeping it simple, makes it easier to follow and stress- free. The best time to plan and budget your money is before payday. By creating a monthly budget to plan your money ahead of time, you have control over your spending and catch deficit, surplus and adjust your savings as needed. There are certain items that should be included in your budget. Your budget should include savings; personal savings, holiday savings, or a plan to ultimately pay off debt such as student loans, credit cards, and car loan.

Types of Budgeting Methods

There are a couple of budget methods to adopt when planning your finances. Each individual and family income and needs are unique and there is no method that will work if there is a lack of commitment to financial goals and consistency. These are the best three methods to create a monthly budget.

Zero-based Budgeting

This is my favorite budgeting method. This budgeting method accounts for every cent in your income. This budget method is very detailed, every dollar is allocated to something. If your income is more than your expenses, the difference may be allocated to paying off debts and savings. If you are trying to stick to a strict spending habit and achieve financial goals, this is an ideal monthly budget for you.

Envelope Budgeting

This budgeting method allocates an amount of cash to each category each month. Cash is put into each marked envelope and once the cash in the assigned envelope is gone. That’s it for that month. This method is good for people who overspend and use credit cards. You only spend from envelopes and no swiping of cards. The downfall to this method is having to carry cash about. A way to make this method work is to set up direct debit for fixed expenses and use the envelopes for the variable expenses.

50/30/20 Budget

This budget method is a basic rule for spending your income. The method states you spend 50% of your income on your needs, 20% on your goals, and 30% on your wants. The needs are the important things you need to pay for. The needs are your fixed expenses, your mortgage, rent, food, utilities. Your financial goals are savings, pay off debt. The wants are the things that you desire to have, this includes eating out, shopping, shoes.

Budgeting is easy yet hard to adhere to for beginners. If you are new to budgeting, it will take a few months for you to get used to it but once you do, it will make enable you to achieve financial goals and help you become debt-free. If you have not, subscribe to my blog to receive a free six months editable budgeting spreadsheet to help you plan your finances.