A ‘budget’ is a word that is frequently misinterpreted, even though a family budget can be one of the most important financial tools in our lives.
When you ask a friend if they want to go out for food, and they say “Oo no I can’t, I’m on a tight budget” it makes you think badly of budgets.
This makes a lot of us think that following a budget means that you can’t do anything that you want to do, ever.
That’s the opposite of what a budget does!
A good, balanced budget is a spending plan – you decide what you want to spend your money on, and then you follow that financial plan.
Have $200 to spare after bills and want to go out for an evening meal? Do it!
That’s the power of learning how to budget. You get to decide exactly what your hard earn money does for you.
What Exactly is a Monthly Budget?
A monthly budget is a monthly plan for your money. Every month you will get money coming in, and you will have money going out.
This way you’re taking all your finances- your income and your payments- into your hands! It’s the best way to achieve independent wealth and take care of yourself financially.
A budget will show you exactly how much you have going in and out, and make sure that you are living within your means.
You will make a list of all of the incoming money that you have such as your weekly or bi-weekly paychecks and side hustle income.
Then you will write down all of your expenses, and this is where it will get interesting. For most people who don’t have a budget, the expenses are what can take you by surprise when you add up how much is going out of your account each month.
With budgeting, you will be able to see the flow of money, and redirect the flow towards better things, to make sure that you are able to work towards your goals.
How to Budget: 6 Simple Steps Anyone Can Follow
- Make the Commitment to Stick to a Monthly Budget
- Write Down Your Monthly Take-Home Income
- Pay Yourself First
- Write Down That Month’s Expenses
- Calculate, Review, and Adjust
- Rinse and Repeat Every Month
Now let’s get into each one of these steps a little deeper.
1) Make the Commitment to Stick to a Monthly Budget
Every month, you will have to create a new budget. Yes, every month – because every month is different. You may get an extra paycheck one month out of the year, you may have more things to pay for in one month than the next, etc.
Budgeting is fun because you can see the progress that you are making towards your goals.
At the end of every month, sit down and work out a new budget. You can, of course, use most of the information from the previous month, but there will be things that vary from month to month, depending on what you have planned.
Remember – a budget is a tool that will help you achieve your goals, and stop you from wasting your hard-earned money on things that you don’t even really want or need.
2) Write Down Your Monthly Take-Home Income
Look at your bank statement and see the exact amount that you have coming in each month. You’ll most likely have incoming money for things like:
- Husbands income
- Wifes income
- Side hustle income
Make sure that you put down the exact money that you will have coming into your account, but if you aren’t 100% sure, it’s worth checking your bank to see.
If you aren’t sure about whether you will be receiving certain money or not, I would suggest leaving that out of your budget, in case you don’t get it. Only budget using money that is guaranteed.
3) Pay Yourself First
What a lot of us tend to do, is to pay our bills, spend money on the things that are taking our fancy, and then try and save any money that is left after that – which is not a lot.
This is one of the biggest budgeting challenges that gets people stuck. Once you get paid, make sure that you pay yourself first.
What this means, is that you think of saving money as a non-negotiable like a bill, and move money straight over to savings before you are tempted to spend it.
4) Write Down That Month’s Expenses
You can look at your bank account to see the things that you need to pay for that month, which will probably be things like:
- House insurances
There will be other things that you will be paying for, so it’s best to check your bank statements and look at previous months.
When it comes to your variable expenses, you can again look back at previous bank statements to see how much you spent in previous months.
This is an important step- if there are things you want to save for, you need to compare to what you’ve spent before or do an estimate. If you want to go camping but stay within budget or have a fun staycation with the family, then you need to take saving for it into account ahead of time.
With categories such as groceries and eating out, this can be guessed wildly wrong in terms of how much is spent, so tracking these expenses will help you to make a realistic budget.
Your calendar will help you to work out the things that you will need to pay for from month to months, such as birthdays and various occasions.
You will want to get your expenses as low as possible so that you have more money left for the important stuff.
5) Calculate, Review, and Adjust
Once you have your income and your expense totals, you can minus the expenses from the income, and see how much is left.
Your bills need to be paid each month – these are non-negotiables. Once you are confident that your bills will be paid, you can see how much is leftover and move that money into various pots.
The pots that we’ve been discussing are things like: sinking funds (for birthdays, Christmas), savings, fun money, emergency fund, etc. It’s up to you to decide how much goes into which.
You can change your mind, and adjust what you originally thought you were doing to do – it’s 100% down to you, just make sure that you are realistic and are prepared for things to crop up.
6) Rinse and Repeat Every Month
A budget isn’t a one-trick pony. You need to keep on top of it and make sure that you change and review it each month.
The more that you look at your budget, the more that it will sink in, and you will be on top of your money. If you are working towards a goal, this will help you to stay on track and keep motivated.
Will a Monthly Budget Really Work For Me?
A monthly budget will definitely work, but we need to remember that we are only human, not a calculator.
What I mean by this is that it’s easy to manipulate the numbers to work for you, and give you loads of extra spare cash each month, but if you are changing habits of a lifetime, you will need to give yourself a bit of slack and be realistic.
If you normally spend $1000 a month on food, putting in the budget that you’ll only spend $100 next month is extremely unrealistic.
An easy way to see how much you have been spending on the variable expenses (so the expenses that change on cost from month to month) is to go back through the last few months bank statements and add up how much you have been spending on those particular things.
The success of the budget is down to a realistic one being created and sticking to it. If you have down $200 for gas that month, don’t go over that amount. If you think you will go over it, then over-budget for it, so that if you don’t go over, you can move that money somewhere else, and have no stress.
The budget that you create is personal to you, so you can decide exactly how much you want to spend on things, and give yourself money for that daily Starbucks treat, or the cute top you’ve had your eye on for weeks if that’s what you genuinely want to do.
Why is Monthly Budgeting so Important?
I am a huge advocate of budgeting because I believe that we should all have things that we are working towards, and as much as we like to tell ourselves that money isn’t important, it sure does help pay for a lot of the things that we desire!
We aren’t talking about a wardrobe that would make the Kardashians jealous, but things like a forever home for your family. Perhaps a career change into a job that will bring you so much happiness, compared to the dead-end job that you’re stuck in now because you need to pay the bills.
Personally, I have used budgeting to keep my head above water when struggling financially, manage my money to enable me to pay off my debts, save up for things that were important to me, and now I am using it to keep my bills paid and to save for a house and a down payment.
If you don’t keep track and control of your money, that’s where the holes open up.
Not sure where your money is going every month? It’s probably going on some random things like clothes or nights out, and those aren’t going to help you to achieve your big goals.
This isn’t the same for everyone of course, and some people manage fine without a budget, but it will certainly help the vast majority of you to get your money going where you want it to go.
What Types of Budgets Are There?
There are a few different budgets out there, but the most popular (for good reason) tend to be the zero-sum budget and the 50/20/30 rule budget.
The Zero-Based Budget is where you allocate all of your money to various things so that you are left with a sum of $0.
As mentioned previously, if we leave ourselves with some money in our accounts ‘just in case’, it’s all too easy to end up spending that money on stuff we didn’t even really want that much.
The zero-based budget will help you find a place for your money so that all of your bills are covered, your savings, money for doing whatever you want with e.g. if you want to spend $100 on nights out that month, then put that into the budget.
The 50/20/30 budget is where you divide your spending into percentages – 50%, 20%, and 30%.
The 50/20/30 Rule basically helps you categorize and prioritize where your money goes:
The 50% is for your fixed essential expenses – the ones that aren’t changing each month, such as your mortgage/rent, insurance, etc.
The 20% is for your savings, or any other financial goals that you are working towards, such as paying off your debt.
The 30% is for the variable expenses that you have each month – so the ones that change from month to month. Examples are groceries, gas, fun money, etc.
The beauty of the 50/20/30 budget is that once you have paid for the essential things (like housing) and your very important savings (the 20%), you need to make the rest fit into the 30% that’s leftover.
This will mean that you will have to be careful with what you are spending on the variable, non-essential items, and make you think about what you are spending your ‘spare’ money on.
Why is a Budget Hard to Stick With?
A budget is hard to stick with if it’s something that you aren’t used to. Like mentioned at the beginning of this article, budgets can throw up negative emotions, and you may feel as though you are restricted when previously you could be free to spend your money on whatever you wanted.
If you’re completely honest with yourself, you probably already know the areas that you are overspending, but you may not be sure how to tackle that problem.
This is where your budget will help you! There are other things that can help you too that go hand in hand with budgeting, such as meal planning, no spend days and tracking your expenses.
It’s going to be hard if you are thrown curveballs. This will always happen, no matter how much you plan, but you can still be prepared for them. When you are budgeting, you should start to put savings into various pots.
Examples that are popular in the personal finance world are emergency funds and sinking funds.
Now just to clarify, emergency funds are for emergencies, like your car has blown up, or your washing machine. Some people may not view those as emergencies, but you will if you need to get to work or wash your kids clothes!
What I mean is, an emergency fund is not for use when you have overspent on your groceries, and need extra for some trainers for your kids. It’s not for buying Christmas gifts or Halloween costumes either – but we will cover those in sinking funds.
Unfortunately, emergencies do crop up, and they do always seem to come at a very inconvenient time!
Putting some money aside for any emergencies that come up, will keep you on track with your budgeting.
Sinking funds – this is another way of saving, but it’s not for emergencies. Instead, it’s for the things that you know you will have to pay for, such as Christmas, Thanksgiving, Halloween, birthdays, weddings, school trips etc. They always happen, at the same time every year, so there’s no excuse for forgetting about them.
You can work sinking funds into your expenses, and this is helpful because you can save up throughout the year, rather than being hit with one big sum nearer the time.
These tips will make it easier to stick to your budget because you will be able to handle any curveballs that life will throw at you.
How to Budget When You’re Terrible With Money?
I don’t believe that anyone is terrible with money, just that perhaps you aren’t sure where to start when it comes to managing it, or understanding the best financial decisions for you and your money.
Positive actions come from positive thoughts. If you think that you are terrible with money, then you probably will be.
If you think to yourself “I may not have done well with money in the past, but I am going to work on ways to learn how to manage my money better”, this will have a much more powerful effect on how you view your finances.
We all need a goal. We need a why.
Why should I save my money each month when Chick-a-fil is calling my name?
Why should I budget when I want to buy new clothes every other day?
Why should I earn extra money on the weekend when I can hang out with my friends?
Those things probably sound tempting, and they are. We aren’t saying that you can’t ever do those things, just that they need to be in the budget, and to be realistic about how often you will want to do those things.
But back to the why. You need a reason to stick to this because nowadays there are a million different temptations trying to take our money – just take a look around you at all of the various marketing ploys.
Budgets will help you channel your money into what you personally find important. Want to travel the world with your partner? Add it to your list and find out how to travel cheap to stick with your budget!
These are examples of amazing, but achievable goals and dreams.
You work hard for that money, and you deserve to be able to do the things that you really, truly want to do.
It’s all about mindset and finding the best methods that work for you. Some people find that using only cash works best for them, and some find that they can only use card. The beauty of personal finance is that it’s completely personal to you.
Monthly Budgeting Tools
When you start budgeting, it can be a bit confusing wondering what to write down, and knowing where to start.
You can use good old pen and paper if that helps you, or there are some other great options that are available to you – it’s all about finding out which one works best for you.
1. Budget Templates
There are some great budget templates out there that are more than capable of helping you manage your money.
Most of them should include the basics of home, food, insurance, and auto – with a further breakdown under each one to help you allocate your money into the categories.
Budget templates are a good option if you just want something simple, that you can print off and stick on your fridge.
2. Budget Planners or Binders
If you are a pen and paper type of person than getting a budgeting planner that works for you is a must.
Budgeting planners and binders are great because there are so many different options to choose from.
You can find a planner that works specifically for you and your families needs.
Are you a fan of Excel? You can create your own budget spreadsheets, and set them up exactly how you want them.
Use them to calculate for you how much money you have extra, and you can use formulas to help you work things out when you need to adjust your budget – it’s your very own budget calculator.
Mint is a great place to manage your money because you can link all of your bank accounts, credit cards, retirement accounts – to give you an overview of your money, and this will help you to manage it better.
It’s free to use, and because it has all of your financial information, MINT can look at the money that you have available and make recommendations based on what it thinks you can save.
5. Empower (Formerly Personal Capital)
We recommend a combination of Empower and Mint to manage your finances, as it gives such a good picture of your money situation.
Empower is a place where you can digitally track your finances – and it’s also free to sign up.
They have financial tools that will show you how well you’re doing and if you are going to be ok in the future too. This is very handy as it saves you from having to do all of the calculations yourself!
It will help you work out your budget by asking you to put in your income, expenses and will help you to track your money throughout the month to stay on top of it all.
BONUS: Extra Budgeting Tips & Tricks
Living frugally will get your expenses very low, and will also help you to assess what is important for you to spend money on. You may have thought that you needed to buy your coffee every day, but find that you don’t miss it, and can cut it out of your budget.
It will make you think about what you want to do with your money, how to manage it better and avoid temptation. Basically, help avoid stupid money mistakes.