Losing track of how much you spend month to month is easy, especially with the increased use of debit and credit cards. However, if you can’t see how much you spend, save, and invest on a monthly basis, you may have trouble controlling your spending and reaching your financial goals. To keep an eye on your spending and better manage your finances, you need a monthly budget.
A budget is a summary of your income and expenses during a specific time period, typically a month. Contrary to thought, a monthly budget does not restrict spending or make you give up things you enjoy. However, it can show you where you can save money or shift income to other areas, like groceries or entertainment. Monthly budgets help you see where your money comes from, how much you have, and where it goes each month.
What Type of Monthly Budget Method Should I Use?
There are many types of monthly budget plans, so we suggest picking one that matches your financial situation. You can use any of these plans to create a monthly budget template to use throughout the year. We’ve laid out the three most popular budgeting strategies below:
- 50/30/20 – This is one of the most basic and best strategies to use if you are just starting to budget. The strategy is to allocate 50% of your income to needs (housing, food, bills), 30% to wants (entertainment, travel, gifts), and 20% to savings and debt repayment.
- Zero-based – Every dollar in a zero-based budget is assigned to a budget category so you have no extra dollars just “hanging” without a category. If you don’t use all the money in a category, these funds can be transferred to another category.
- Envelope – This budget has been around for many years and especially helps people who struggle with debt and bad spending habits. With the envelope budget, each category in your budget is represented by an envelope. You fill each envelope with the exact amount of money you budget for that category. When the envelope runs out, you can’t spend in that category anymore.
How to Create a Monthly Budget
Collect Your Financial Paperwork
Gathering up any paperwork that has information about your income, debt, and spending can help you make a thorough monthly budget. Financial paperwork may include bank statements, utility bills, credit card bills, or mortgage loan statements.
Calculate Your Income
You need to know how much money you have to work with to create a monthly budget. Total what you earn each month after payroll deductions and taxes. Include income from your regular paycheck as well as any money you earn from side gigs or part-time jobs.
Make a List of Monthly Expenses
Write down all the expenses you have during a month. This could include car payments, insurance, utilities, childcare, and student loans, among others. You can use your bank and credit card statements to help you identify your spending categories.
Assess Which Expenses are Fixed or Variable
Fixed expenses are required expenses where you pay that same amount each time every month. This could include rent, car, or internet payments. If you pay a standard credit card fee every month, this would be considered a fixed expense. Also, if you plan to save a standard amount or pay off a certain amount of debt each month, these would be fixed expenses as well.
Variable expenses are expenses that change from month to month. This could include eating out, gifts, entertainment, or gasoline.
Once you have decided which are fixed and variable expenses, assign a spending value to each category. Fixed expenses come first, then decide how much you have left to assign to variable expenses. Use the budgeting method of your choice to make the proper adjustments.
List Your Financial Goals
Are you trying to pay off your car loan in a year or save $1,000 for an upcoming trip? List out your financial goals and adjust your budget to accommodate these goals.
Total Your Income and Expenses
Flex your math skills and add up your total income and total expenses. If your income is higher than your expenses, you are in the clear. You can use the extra money towards savings, paying off debt, or a retirement fund. If your expenses are higher than your income, you may need to go back to your budget and adjust your variable expenses.
Budget Advice from White River Credit Union
If you need help creating a monthly budget or making strong financial decisions, reach out to our specialists at White River Credit Union. We provide one-on-one financial advice and online resources to help you make the most out of your budget. Online, we offer access to a monthly budget planner to help you create an easy-to-manage budget that tracks your expenses, debt, and more. We want to help you reach your goals and financial peace, so we put in the time and effort to understand your financial needs. Reach out to us today. We’re here to help!