The most important thing to do when you are trying to get your finances on track is to make a monthly budget. This is the first step towards any financial success story.
A monthly budget can be an effective way to stay on track with your finances.
You can learn more about unnecessary expenses you can cut and start to save more money. Some easy steps to get started include choosing a budgeting method and calculating your monthly income.
Creating a budget can seem difficult if you’ve never done one before. Fortunately, there are some simple ways to get started. Here’s how to make a monthly budget in six easy steps.
6 Steps to a Monthly Budget
1. Choose a Budgeting Method
There are various budgeting methods you can choose from, but the right one to use is whichever one you’re most comfortable with. You can consider a few methods: the 50/30/20 budget, the pay-yourself-first budget, and the zero-based budget.
The 50/30/20 budgeting method divides your expenses into three categories: 50% of your budget goes to necessary expenses, 30% to discretionary expenses, and 20% to savings and debt payments. A pay-yourself-first budget involves putting away a specific amount of your monthly income towards your savings first.
The rest is used for bills and other costs. A zero-based budget is where every dollar is allocated towards a specific expense. Your income minus your expenses equals zero each month.
2. Calculate Your Monthly Income
Write down the monthly income that you receive from your employer. If you have other sources of income, such as social security or child support, add that as well. If you’re self-employed and your income varies a lot, use your lowest earning month in the past year as your baseline income.
3. List Your Monthly Expenses
Use your credit card statements and bank statements to figure out what your expenses are. List everything you’ve spent in the last three months, including expenses such as rent, groceries, loans, and other costs.
4. Separate Your Fixed and Variable Expenses
Once you’ve listed all your expenses, separate fixed and variable expenses. A fixed expense is an expense you pay the same amount for each month. This type of spending includes rent, mortgage, and car payments. Variable expenses change from month to month. A few examples of this type of spending include gas, eating out, and entertainment.
5. Adjust Your Spending To Stick To Your Budget
After figuring out your income and expenses, you can determine how to adjust your spending to stick to your budget. How you adjust your spending will depend on your chosen budgeting method.
For example, if you’re following the 50/30/20 budget, and your discretionary expenses are more than 30%, you would find ways to cut those expenses until they amount to 30% of your budget. In this case, you might choose to eat out less or cancel unnecessary subscriptions.
6. Set Financial Goals
With a monthly budget set, it can be easier to start setting financial goals to achieve. Short-term financial goals you might consider achieving are paying down credit card debt or building your emergency fund. Long-term goals you can achieve are funding your child’s education or saving for retirement. Keep all these steps in mind as you begin to create your monthly budget.