How to Create a Monthly Budget that Works for You.

According to Jeremey Vohwinkle on The Balance, one of the best ways to control your money, and make your money goals a reality is having a budget.

Most people don’t work with a budget, and just spend their money as it comes.

Planning for your money saves you a lot of stress that comes from mishandling your money. There is a common saying that says, if you don’t control your money it will control you.

Most people associate budgeting with restricted spending but in reality, a budget does not have to be restrictive or strict to be effective.

A budget helps you figure out how to balance out your income and expenses by showing you how much money you expect to earn and how you expect to spend it.

With a budget, you have a picture of your required expenses such as rent, loans, etc. and your optional spending such as eating out or entertainment.

Coming up with a budget is not an exciting activity but it’s rewarding if you allow it to be rewarding.

To come up with an effective budget, you have to be honest about your income and your expenses. You also need to be honest about your spending habits – the good and the bad to figure out which habits have to go.

In the simplest words, a budget shows you how much money comes in, where it comes from, and where it goes.

How to create a budget.

With technology, creating a budget is really easy. Well, you can still use the old-fashioned way of pen and paper if that works for you but budgeting apps and budget spreadsheets are easier and more efficient.

You can come up with a breakdown on Word or Excel and have different fields showing your income and different categories of expenses.

With a budgeting app, a template, or a spreadsheet, you can automatically do your calculations without a sweat.

1.Budget before the month begins.

The best time to create your monthly budget is before the month begins.

Budgeting before the month begins helps you think ahead of time and plan for every expense before.

It’s also a good tactic to make sure you actually prepare your budget. You will have time to plan and by the time the new month begins, you are good to go.

For procrastinators, this is a good way to beat procrastination when it comes to budgeting.

2.Calculate your income.

For those with only one fixed source of income, you might escape this one because you already know what to expect at the end of the month.

However, if you have several sources of income, you need to calculate your total monthly income by adding up all the sources.

According to EveryDollar, income is whatever money you expect to receive during the month. It could be your regular take-home pay from your job after the taxes are deducted. It could be from your side hustle, your investment returns, child support, allowances from a spouse or from your parents, etc.

Know all your income sources and add up every source to get your monthly total income amount.

3.Write down all your expected expenses.

Write down everything you expect to spend money on that month – big or small. This is what will determine your budget.

This list will include things like:

• Rent
• Food
• Electricity bills
• Car payments
• House mortgage
• Personal care
• Entertainment
• Transportation expenses
• Your friend’s birthday present
• Entertainment
• Etc.

An effective way to come up with this list is to look at your previous receipts and bank statements, probably from the past 3 months. From this, you will easily identify all your expenses.

4.Calculate all your fixed expenses and variable expenses.

When it comes to expenses, there are fixed and variable expenses.

From the list you wrote, look for expenses that are mandatory and whose payment amount is the same each time – these are your fixed expenses.  

Make sure you include every other essential expense that seems to be the same every month such as rent. If you have a fixed amount set apart for your savings or investment, or fixed loan payment, add that up.

Fixed expenses include:

• Insurance
• Mortgage
• Loan payments- student loans, car loans etc.
• Set-internet fee
• Savings – your money goals

From the term itself, variable expenses are expenses whose costs change from month to month.

• Electricity
• Water
• Entertainment
• Etc.

Have a specific amount set for each expense starting with your fixed. For your variables, set an approximated amount by looking at your previous payments.

5.Remember to be month-by-month specific.

As you prepare your budget, check your calendar for unique spending coming your way during that month.

This includes things like:

• Anniversaries
• Birthdays
• Family get together / visits
• Etc.

6.Total your monthly expenses and your income.

After calculating all your expenses, total them up and have one value.

Generally, your expenses should not be more than your income. You are creating a budget to help you balance out your expenses and your income.

If your budget is not balancing out and your expenses are more than your income, it’s time to make adjustments.

If your budget is balancing outand your income is more than your expenses, you are good. This means you have extra money that you can actually use for something else.

7.Create a spending allowance.

After you have taken care of all your monthly expenses including savings, etc. you can create a spending allowance for yourself with your extras.

This is what you can spend on whatever you want without having to worry about unpaid bills or something like that.

Remember to track your spending allowance to see how much you are spending as the month goes by to avoid running out before the month ends.

Remember these:

• As you budget, keep a buffer in your account

Always have some money in your bank account and pretend it doesn’t exist. Don’t see it as emergency money but see it as a buffer.

Build a buffer to avoid getting your bank account broke. Just don’t let your bank account get to zero.

• Make sure you track your spending and ensure you stay within your planned budget.
• As you create your monthly budgets, save for your planned large purchases/ expenses. This could be something like a Christmas holiday vacation.
• Remember to create emergency savings account for emergencies. For example, if you are paid on commission, a time might come when the market is low. With your emergency savings, you will be cushioned during such times. Emergency saving also helps you avoid using money saved for specific and planned purchases and expenses when emergencies come up during the month.

• Remember to adjust your budget throughout the month when there’s a need to. Things change and you need to adjust your budget if an expense changes. You probably overestimated or underestimated your expenses. Your water bill might come higher than you expected. This means you might have to lower your entertainment or eating out costs to make up for your water bill.

Final thoughts…

When it comes to money, you are the boss and you should always be in control of your money or else it will control you.

Budgeting is what will give you control over your money and spending.

Remember this, your budget doesn’t have to be restrictive to be effective. You can adjust your budget through the month if need be. You can still spend on the things you enjoy on a budget.

Know your income and always make sure your expenses are lower than your income.

With one monthly budget at a time, you can accomplish your financial goals making them a reality.