I live and die by my monthly budget, and I love it.
I carefully crafted my budget when I was living on my own, and it has carried me through very lean times to be in slightly more comfortable times now. I definitely think that everyone should have a budget of some kind. It helps keep you on track, on top of expenses, and allows you to save for future goals. It’s the only way I can do what I am doing: saving for a wedding, while at the same time paying down loans and going on mini vacations!
Here’s how you can craft a master monthly budget of your own. This particular method works best if you’re on a reliable income (the same amount of money each week/month).
DOING YOUR RESEARCH
The first thing you will have to do is get a grip on is your money coming in and your money going out.
For people who are salaried or have fixed hours, income is easy to figure out. If you have multiple income sources, just pool everything together. Your monthly paycheck is the absolutely maximum amount of money you have to work with.
Next, you’ll need to get a grip on your expenses. Where does your money go?
I make most of my purchases on a credit or debit card, so I found the best way to do this was to look at a few of the past months statements. If you have multiple accounts or cards, total everything at the same time.
When you have your entire list of expenses, you’ll need to categorize them. When I was living alone, I used the following categories:
- Cell Phone*
- Eating out/entertainment
- College loans*
- Gas + car expenses
- House + Personal
- Discretionary (aka- everything else)
Your categories might be different than mine; it all depends on your lifestyle and current expenses.
Assign categories to all of your expenses and get a grip on how you’ve been spending your money in the past. That’s the best way to see how you will spend money in the future, and where you can “cut the fat” and reduce expenses.
MAKE YOUR BUDGET
Now that you have information on your history, you can move onto creating a perfectly balanced budget that works for you.
There are certain expenses that are fixed and other expenses are variable. In the list above, everything that’s starred is fixed and is the same amount every month. Those are prime targets to lower if your expenses are too high. Your fixed expenses are great, though, because you know exactly what to expect. If your rent is $800 per month, you know that you’ll have to pay that same exact amount every month. Those budget categories are easy.
It’s a little harder to nail down the variable budget categories because you never know exactly how much you’re going to spend. You’ll use your spending history to make an educated guess about how much you’ll need in variable categories. If you’ve spent $200 a month going out to restaurants and bars every month recently, that might be a good place to set the budget category.
Don’t forget to add in categories for savings goals like retirement, vacations, or gift funds. At the time I created my budget, I didn’t have much money to spare, but I knew I needed a little fund for car. I added padding to my monthly category to account for periodic expenses like oil changes, car insurance, and repairs.
When you’re working on assigning monthly caps to each category, total it up and see how it compares to your monthly income. To balance your budget, you just have to be making more money than you’re spending!
If you have room to spare, then you are lucky! I highly encourage you to include a discretionary category to catch expenses that don’t fall anywhere else. I have a large chunk of change there to catch things like birthday presents, haircuts, stamps, and charity donations.
You should also consider budget categories for retirement savings, travel, house savings, or other goals. It’s great to also pay down debts at a higher rate than they are due. Even though my student loans have pretty low interest rates, I’m eager to be rid of them so I pay more than what is due every month. It’s part of my plan, so I stick to it.
TRACK AND ADJUST
After you have your monthly category allocations, it’s time to put this into practice! I use an excel spreadsheet to track my expenses, with each month as a new tab. I organize each expense by category, listing everything out. As I go through the month, I see how much money I have left in each category.
You can download an example of that spreadsheet here—there’s both a blank form and a filled-out example. It’s made out for someone that has around $2,400 coming in each month.
It’s important to keep track of absolutely every expense. I check my bank account every couple weeks and add my expenses to the spreadsheet. If I use cash, I just make a note on my phone and later total it up. As the month goes on, I see how much money I have left to spend in each category. Once you already have a spreadsheet going, this doesn’t take much time at all. Just sit down with your receipts every Saturday morning and power through!
It may take some time to craft a budget that follows your expenses perfectly. It’s easy enough to make adjustments to make an even better budget, and every month is a little different. If your budget isn’t perfect at first, don’t worry. Keep trying and you’ll figure out allocations that track and control your spending.
And don’t forget the three pillars of my budget planning:
• Track all expenses by category
• Keep an updated budget
• Never spend more than you make!
Good luck! Hopefully your budgeting will be as helpful to you as it was to me.