How I Make a Monthly Budget in 6 Simple Steps

I have been a binge shopper, I admit it.

The moment I used to get the Money Credited Notification, I used to start thinking of ways I could spend my money.

I didn’t do budgeting at that time but this is what I remember so far. Most of my expenses would go into —

1. Rent — 20% (low income at that time)
2. Food — 15%(if you are into healthy eating and have a big family then the budget actually goes even beyond this!)
3. Travel — 10% (once a month)
4. Shopping — 10% — 15% (when you are young, you think you can save money later.)
5. Savings — If any left (No tracking. My biggest mistake)

The biggest mistake I made was to not track my incoming and ongoing expenses. We all have side hustles. So managing income also becomes a necessary task.

It’s simple. Budgeting is not as hard as many think. It just requires you to set up a system so that it aligns with your financial goal. You can use any kind of system. There are many financial apps on the Google Play store and even on Apple Store. There are many free templates as well to track your money. I started with pen and paper and later shifted to Google Sheets. because seeing my money in graphical format is easier to analyze compared to just a list of numbers.

Financial graphs are easier to read

Example — Take this example for the transaction record on card.

Megan Paycheck #1 → $300

Josh Paycheck #2 → $300

Side Hustle 1 → $290

Investment Earnings → $420

Airbnb Income → $105

Emergency Funds → $300

School Fees → $288

etc

The above numbers are difficult to read. Now see this in the graphical format. Easy to read and clean.

What is a monthly budget?

In simple words, my monthly budget is to track how I spend my money. The main motive here is to spend less compared to what i earn.

The budget can be for —

1. Rent
2. Utilities
3. Loan
4. Credit Card Payments

I now love budgeting because it has helped me a lot to plan my expenses beforehand. This way I can have enough money to cover essential costs or any kind of emergencies.

Before spending ask yourself a simple question — “Do I really need this?”

If yes then go for it. If not then better leave it.

Why budgeting is important

I don’t think there is a single person on this planet who doesn’t know the importance of budgeting. I have been budgeting for 1.5 years now and this is what I have seen —

1. My bills are paid on time. Paying bills on time helps to track money better.
2. Investment. This I have started recently. I am still not good at this. but doing this under someone’s guidance. More on this later.
3. Helps me to save money for unplanned expenses. I am scared of medical emergencies. 4 years back we have all seen how important it is to save money, especially for medical emergencies.
4. My overspending habit is under control. No more buying stuff that I no longer need.
5. I have peace of mind that now my finances are in order.

How to make a monthly budget: 5 steps

Step 1: Calculate your net income

You may have a 9–5 job. But there are high chance that you must have some other income sources as well. Side hustles are really popular now and more than 80% of people in today’s world have at least one side hustle. Make a list of all the side hustles you have along with your main income source and track all the earnings from all sources. Include your investment sources as well.

Step 2: Track your spending

This is very important when it comes to managing your expenses.

Common expense categories in a budget include:

• Rent or mortgage payment
• Gasoline
• Insurance premiums
• Property taxes
• Tuition fees
• Home and car maintenance
• Entertainment and hobbies
• Clothing and personal care
• Gym membership
• Student loan payment
• Travel
• Food
• Car payment
• Medical bills
• Utilities
• Childcare

Step 3: Set realistic goals

Set a goal for how much you need to save each month. I’ll advise you to target as high as 30% of your net income. You can set your goals for each incoming source as well as for all your expenses.

example — you can set your budget for your personal shopping to $250.

Step 4: Make a plan

Planning is a must. If you fail to plan then you are planning to fail. You can follow the 50–30–20 rule.

50% — > Needs

30% — > Wants

20% — > Savings or debts

Example —

1. Needs (50% of your income) → Rent, Groceries, Utilities, Car Payment
2. Wants (30% of your income) → Subscriptions, Shopping, Vacations
3. Savings/Debts (20% of your income) → Retirement, Emergency Funds, Credit card payment, Child’s education

Step 5: Adjust your spending to stay on budget

The above is just a rough idea. If you have more income, then you can increase your monthly savings. Like from 20% I would advise you to go for 30%. If you live a minimalist life like me then your wants will be even less than 30% of your income.

Step 6: Review your budget regularly

Use graphs for the purpose of seeing how much you spend and how much you earn. Numbers are very difficult to understand and review. For analyzing numbers properly I suggest using some apps where you can see the graphs for all your input. Images are easier to analyze compared to just a list of numbers.

Conclusion

I’ll end this here. since I discovered budgeting, I have fallen in love with it. I am not still very good at managing my expenses as I have a lot to learn. But I’ll keep you up with the updates on my budgeting adventure.

I have seen a lot of difference in my prior and current savings. no doubt my savings have increased since I started tracking my money. No matter how small or big your finances are at this point, use some free online tools and start budgeting.

You won’t regret it, I promise.

See you soon.

Originally published on my blog.