Are you wondering how to make a monthly budget… like how the heck do you do it? If you are struggling to figure out how to set up a budget that has all the aspects you need, and that you’ll stick to, this one’s for you.
Every person needs to know how to make a monthly budget in order to have good finical health and hygiene. Hearing that, you’re probably thinking.. well thanks a lot Brynn, I know that duh! Well, lucky for you, I have been through the ups and downs of creating budgets that have and have not worked, and I’m sharing with you how you can create a detailed budget that will work.
This step by step guide will help you feel confident in your ability to keep track of your income and spending. Your budget will be something you feel excited to track, and you’ll be set up to reach your financial goals.
Building a budget in this way allowed me to begin saving for, and buy my first home in under 6 months (by the age of 25!).
Let’s face it.. finances are stressful. Budgets may seem like something that only penny pinchers use out of necessity. NOPE! Every fortune 500 companies have budgets. If you ask most millionaires, the way they accumulate wealth was by tracking their finances. So if you want to be settled knowing your financial snapshot, let’s make you a solid monthly budget!
This post is all about how to create a monthly budget with detailed categories.
How to Make A Monthly Budget
1. Choose a Platform
Yep, the first step to make a monthly budget is figure out where you want it to live.
At this point, you have quite a few choices. There are lots of trustworthy sites that you can link with your accounts that make tracking easy.
A few of those that I personally like include (don’t worry they’re free):
Check those out and see if you like any of them!
Ok, now let’s say you don’t like the idea of having an online option and prefer a more manual version. That’s great!
You can either create a spreadsheet or use old-school pen and paper. Either one will work great.
2. Input all forms of income
If you decide to go with one of the online budget options, this process will look unique for each. Either way, the concept is still the same.
Your income is the top line. Everything trickles down in your budget from here.
Include every way that you earn money. If you’re a W2 employee, put your monthly salary down. Instead, If you get paid hourly, you can either take an average of the past few month’s total income, or estimate the total hours you’ll work in the month and multiply by your hourly wage.
Any side income you may have, include this here too! This will give you a good picture of what you are working with.
For you spreadsheet users, create an income section like the one below:
Ok, great! You’re done with that, what’s next?
3. Reserve Space for Savings
One of the most important rules of personal finance is to pay yourself first! If you want to really see your wealth grow, you have to keep this close to your heart.
What does that mean?
It means that before you pay other people, business, etc through your monthly expenses, SAVE!!
So the next section of your budget is savings. This can be traditional savings, investments, or whatever else you consider paying yourself. But it cannot be going out of your personal accounts or assets.
A good rule of thumb is to save 20% of your income. That may seem difficult, but if you pay yourself first, it’ll be easier to cut out non-essentials later.
Determine what exactly those savings are going towards. Some categories you could put down include: home payment, vacation, IRA, health costs, emergency fund, etc.
This will help you keep track of where you are tracking relative to your goals!
If you are doing this in your spreadsheet, here is an example of how it could look with that 20% rule in mind:
If you want to know more about how to set and achieve financial goals, next week’s post will be all about that!
4. Determine Fixed expense categories
Are you feeling a bit confused about what fixed expenses are exactly, don’t worry. It really isn’t that complicated.
List out all of the items that you have to pay on a monthly basis. These could include rent, mortgage, utilities, phone bill, etc.
The nice part about this section is that the amounts really shouldn’t change a bunch month to month.
Give that portion a total line so you can see where you’re at so far. Check out this image for an example for spreadsheets:
5. Determine Variable Expense Categories
Great! Now that you’ve determined your fixed expenses, you’re ready to list out all the variable expenses you want to fit into your budget.
Keep in mind, this part of your budget is where you need to balance your income and expenses. You have the choice how much you spend in this area.
Start off with the most important categories that hold the most weight FOR YOU. Remember this is your budget, and if getting a massage this month is super important, put that towards the top. No judgment. Just keep the spending in line with the income.
As an example, I typically put groceries, restaurants, and home renovation expenses at the top because those are super important to me.
A tip, particularly for couples (but honestly this is good for anyone): include the categories “mad money” and “miscellaneous”… Here’s why.
Mad money is money that can be used without any accountability. Each person that is included on the budget should get their own mad money each month to spend on ANYTHING they want. No guilt, no questions, nothing.
This can help avoid conflict surrounding finances and perceived irrational spending.
Miscellaneous categories provide a catch all for random purchases that were unexpected. It doesn’t have to be large, but it can cover that random midnight ice cream run, or the bouquet of flowers for mother’s day you forgot to add into the budget. If there is anything left over from this category, it can go into your savings at the end of the month!
Once you’ve determined your categories and allocated amounts to each, give this section a total!
Here is the spreadsheet example:
6. Subtract Income From Expenses
Now you’ve created all the categories and tracking you’ll need. A huge part of making sure your budget will work is to see if it balances.
To do this, take your income total and subtract out the savings, fixed expenses, and variable expenses totals.
If this calculation equals zero, you’re all set! Alternatively, If it’s less that zero, you’ll need to adjust your spending to be less. If it is greater than zero, you have that much more to spend!
Keep tweaking your budget until it equals zero.
Here is the spreadsheet example:
7. Evaluate Weekly (habit stacking)
So… it’s all well and good to create a budget, but if you don’t ever check back in to put in your actuals and see how you’re actually tracking, it’ll just be smoke in mirrors.
To really see your budget make a big impact, be sure to check in on a weekly basis. If you are tracking manually, add in any expenditures that have occurred throughout the week. Make adjustments as needed.
Don’t get stressed if you are a little off from your budget, after all you have next month to adjust that section.
BUT HOW DO I REMEMBER TO CHECK IN BRYNN?? Oh gosh, I’ll write a whole post on this, but one recommendation I have is to use the habit stacking method.
This means, stack the check in with a habit you already have. Say each Monday you have the habit of watching Bachelor. Tell yourself you can’t watch until you’ve evaluated your budget!
It really doesn’t take too long to do, and soon you’ll get used to checking in. You may even get excited to do it because you’ll see how close you are getting to your goals, it’s thrilling!
Final note, your budget is for you, so make it work for you! If you have categories you want to add that are super important to you, ADD THEM! If getting your hair done every month is necessary for you, add that in!
Best of luck as you develop your detailed budget!