How to make a monthly budget plan
January 2, 2024
You work hard for your money; now it's time to make it work for you. Whether you've used a budget before or are new to the concept, a monthly spending and saving plan can help you meet your money goals and feel financially empowered.
Here’s how to make a monthly budget and why now is the best time to build one!
Why You Should Have a Monthly Budget Plan
Budgeting comes with many perks, but one popular reason for using a budget is to change a spending habit. From getting out of debt to putting something away in savings, money behaviors can be difficult to modify if you aren't quite sure how they happen in the first place. A monthly budget plan reveals a lot about your relationship with money and gives you a plan of action to start making financial progress.
Benefits of Maintaining a Monthly Budget
Some of the most notable advantages of a budget plan include the following:
- Avoid overspending: Know where every penny goes to prevent spending too much on any one thing.
- Prioritize spending: Ensure the things you want to buy most get paid for before everything else.
- Save money for an emergency: With three months or more of your expenses put away for a rainy day, you'll be assured if something goes wrong.
- Plan for big goals: Whether you want a lavish wedding or a down payment for a home, monthly budgeting gives you a roadmap for meeting milestones and keeping you on the right track.
- Get out of debt: Whether you have unplanned credit card balances or just want to pay down your school loan early, budgeting helps you determine the best way to accomplish debt goals.
Budgeting is a useful tool for people of all income levels and offers a plan for achieving big and small goals.
How to Create a Monthly Budget
Setting up a budget for the first time will require some focus; you’ll be looking at everything you earn and buy in a month. Once in place, however, it’s fairly easy to maintain and can help you make major steps to your next life goal. Here are the steps to take to make a budget for beginners.
1. Calculate Your Monthly Income
How much money do you make each month? If you're not sure, take a look at paystubs, child support deposits, and any other sources of income to see what you truly bring home. Remember that gross earnings will be more than what hits your bank account (net income); account for taxes and benefit costs (like employer-offered health insurance.) If your income varies greatly from month to month, you may want to average the last three months together for an estimate you can work with going forward.
2. Track Your Spending / Expenses
Now it’s time to consider what you spend each month, and the answer may surprise you! While many people know about how much money they spend, not everyone realizes what they spend it on. Take all of your expenses from the last three months and break them into two buckets: Fixed monthly expenses and variable expenses.
Fixed includes set payments you make each month that don't change, like rent or a school loan payment. Variable expenses can be more or less each month, such as the amount you spend on fast-food lunches or your gasoline bill.
3. Set Spending and Savings Financial Goals
Now that you know what you make and what you spend, you can break down your spending into categories. Fixed expenses will be the same every month, so assign those first. Choose a category for housing, with costs for repairs, home insurance, or HOA fees. Do another category for food, including eating at your favorite Indianapolis restaurant or the weekly trip to the grocery store. Add another category for health expenses, including insurance or a visit to your chiropractor.
Everything you'll spend money on should be in a category with a set spending limit you plan not to go over during the month.
With a number for income and a number for spending, it’s time to compare. Is there not much left over each month? It may be time to adjust by making more money each month through a second or higher-paying job, or you can cut costs in those variable areas you discovered when setting your budget category limits.
Savings goals are important here, too, even if you have very little after each paycheck. Even $20 a month can add up over time and get you closer to that vacation in the Indiana Dunes or the down payment on your home in Valpo. Both short and long-term goals matter and should always be included in the budget.
4. Adjust Budget as Needed
It’s likely that you won’t follow your budget 100% after the first month; it’s to be expected. You may spend more in some areas despite your best efforts, but this means you would need to spend less in other areas. By keeping an eye on spending throughout the month, you won’t have any big surprises at the end and can keep on top of your goals.
Look at your budget at the end of each month. How did you do? Are you making improvements? It’s important that you see progress over time, even if you have setbacks now and again. Focus on places you did well and ask yourself if you can make that happen in other budget categories. You likely have all you need to succeed, and the budget can put you in the right frame of mind to make it happen.
Budgeting for all of Life's Changes
With a knowledge of how to budget, you can take this tool with you through all of life. When having a baby or moving to a new city, your budget will likely change dramatically which can help you continue navigating your savings goals.
Centier Bank is here to help along the journey, too. Explore our resources for money management. They are designed to answer your questions about building a family budget, saving for goals, and making the most of your hard-earned money.
