How to Create a Monthly Budget that Works for You

Making a budget is an important way to save money. A budget also helps you live within your means. It helps you become more aware of your expenses, and finally a budget can help you reach your financial goals faster. 

Budgeting certainly doesn’t sound like much fun, but I promise it isn’t that bad. If you follow some simple steps you’ll get the hang of budgeting, and once you get started you may even begin to see it like a game.

Step 1: Know what you have, what you earn, and what you owe.

You can’t create or stick to a budget if you’re ignorant about your finances. It’s time to start digging through your paperwork: your bank statements, credit card bills, any loan documents or other kinds of debt you have, and your income statements. 

Find out exactly how much you have in savings, checking, and investment accounts. Know how much you earn, which is more than just your paycheck. Your benefits are worth money.

Step 2: Make financial goals.

You can make a budget without having any goals, but it won’t be much use. Now that you know exactly what you have and what you owe, come up with some goals for your future. 

Do you want to pay down debt from cash loans, online loans, auto title loans, or student loans? Do you want to improve a bad credit score? Do you want to save for something in particular? Know what your goals are so you can target your budget to meet them.

Step 3: Track your expenses for at least a week.

Next you need to know how much you’re currently spending. This will give you an idea of what you’re accustomed to spending and where you are spending too much. 

Take at least one week, more if you can, to record and track every penny you spend. Be specific and record exactly what you buy and why. Do everything like you normally do so that you get an honest picture of your money habits.

Step 4: Categorize your spending and look for places to cut back.

Take a good, hard look at your spending habits and sort and categorize them. Separate out your spending into essentials and non-essentials in particular. 

Look for areas in which you can cut back and make your cut-backs appropriate to your saving goals. The bigger your goals are, the more you will have to cut back. This is the time to really consider how frugal you want to be, or can stand to be. 

You want to save more, undoubtedly, but you have to decide how much you’re willing to sacrifice to meet your goals. Will it really be possible to cut out your afternoon coffee? Or will that make you miserable? Make cuts that make sense, but also match your lifestyle.

Step 5: Pick a budget strategy.

When it comes to the hard work of deciding just how much you’ll spend in each category, you may find you’ve hit a roadblock. 

This is where it helps to use strategies that have been created and road-tested by experts. 

For instance, the 50/30/20 budget is a good basic guideline to follow: 50% of your expenses go to essentials like rent, utilities, and food; 30% goes to unnecessary expenses, like your afternoon coffee, your phone bill, or eating out; the final 20% goes to savings, investments, and reaching goals.

Step 6: Use a budgeting tool.

Once you have a budget created, you need to continue tracking your expenses and monitoring how well you stick to the plan. 

Tools can help with this. At the most basic level this means keeping a pen and paper record or a spreadsheet of spending and saving. If you want to get more high-tech with your budgeting you can decide to use online tools, like Mint to track your spending and how well you stick to your budget.

Step 7: Re-evaluate regularly.

Your budget shouldn’t be set in stone. As your circumstances change, your budget should also change. You might get a new job and start earning more or less money. You may come into an inheritance, change your financial goals, or start a family. 

Every few months, or at least once a year, re-evaluate your budget and adjust it as necessary. Decide if you are happy living with restrictions or if you have been too hard on yourself. Change the budget as needed to meet your goals, but also to make you happy.

Budgeting doesn’t have to be a chore. And the key to sticking with a budget is to make it work for you. There is no one-size-fits-all budget plan. 

Get started with these steps and, if over time, you find that your budget isn’t working, change it. Eventually you will find a plan that makes the most sense for your goals and for your lifestyle.