Have you ever felt like there are more days in the month than money in your pocket? This can happen due to a lack of financial planning.
Before you apply for an emergency loan at the last minute, you can create a monthly budget to organize your finances and track where your money goes each month.
Continue reading to learn more about how to create a budget to help you better understand your spending patterns.
What is a Monthly Budget?
A monthly budget is a strategy for balancing your income and outgoing costs to meet long-term financial objectives. It helps ensure you don’t spend more money than you have and save money along the way.
If your income is more than your expenses, you have money left over to save or use for other things. If your expenses are more than your income, you should find ways to reduce your expenses or increase your income.
Creating and following a monthly budget may be difficult at first, but it can help you achieve your financial goals with time.
Elements of a Monthly Budget:
When it comes to budgeting, there are three key elements to consider: income, expenses, and savings.
- Income: Your income is the money you have coming in each month, whether from a job, investments, or other sources.
- Expenses: Your expenses are what you need to spend each month to cover your basic costs of living, like rent, daycare expenses, and utilities.
- Savings: Your savings is the money you set aside each month to cover unexpected expenses or save for future goals.
By closely examining all three of these elements, you can better understand where your money is going and how to make adjustments to ensure that you’re on track to meet your financial goals.
How to Create a Monthly Budget
Follow these five steps to get started on creating your monthly budget:
1. Calculate Your Total Income
Start by calculating the total amount of money you make in a month. Your total income is your take-home earnings after tax deductions, health insurance, and retirement contributions. If you have multiple sources of income like freelancing or gig work, you’ll need to add that amount too.
2. List Your Monthly Expenses
List all the things you spend your money on every month. It’s helpful to review the last three months’ worth of expenses to see if there’s a pattern in common items you purchase every month.
Common monthly expenses include:
- Car payments
- Life insurance
3. Determine What Your Variable Expenses Are
After making a list of your fixed monthly expenses, determine which are variable. Examples of variable expenses include eating out, entertainment, and extra shopping.
If money is tight or you need to save for something important, you’ll know what expenses you can cut back on to meet your goals.
4. Create a Savings Goal
A savings goal can help you focus your efforts and stay on track. It can also make it easier to resist spending temptations since you’ll have a specific purpose for your money.
When setting a savings goal, it’s important to be realistic. Consider what you can reasonably save each month. Once you have a target amount in mind, decide on a timeframe for reaching your goal.
5. Make Adjustments
If you find that your budget is too restrictive or doesn’t allow for enough flexibility, don’t be afraid to make adjustments. It’s also best to adjust your goals if you receive more income or make large purchases.
The Bottom Line
Monthly budgets are a great way to keep your spending in check so you’re not overspending each month. By taking the time to calculate your total income, list your monthly expenses, determine your variable expenses, and create a savings goal, you can create a budget that works for you and helps you save money.
The most important thing is that you have a plan and are working towards reaching your financial goals.