How To Make an Easy Monthly Budget in 7 Steps

Vault’s Viewpoint on Making an Easy Monthly Budget

• Calculating your income and expenses are key steps in making a monthly budget.
• To get the most value from your monthly budget, set short-term and long-term financial goals.
• You can use various tools to set up a monthly budget, such as a budgeting app or spreadsheet.

What Is a Monthly Budget, and Why Is It Important?

A monthly budget is the cornerstone of tracking how much money you make and how much money you can spend. Creating a monthly budget can help ensure you’ve got enough money to cover living expenses, prevent overspending, determine where to cut spending and guide planning for future purchases.

Overall, a monthly budget can help you reach your financial goals, whether it’s paying bills, establishing an emergency fund, putting away money for a down payment on a house, saving money for a vacation or setting aside money for retirement.

How To Create a Monthly Budget

Making a monthly budget doesn’t have to be a chore. Follow these seven steps to easily set up a budget that tracks your monthly income and spending.

Step 1: Calculate Your Income

The first step when making a monthly budget is figuring out how much money you have coming in each month.

To do this, add up your pay and other sources of monthly income, such as earnings from side jobs or money from government benefits. Then, subtract taxes and other deductions to generate your net income. Net income is the figure you should use in your monthly budget.

Step 2: Look at Your Expenses

Every monthly budget must include data about your expenses. To get a handle on your expenses, divide them into two buckets:

• Fixed expenses: Fixed expenses include ongoing costs, such as mortgage payments, rent payments, insurance premiums, streaming subscriptions and gym memberships.
• Variable expenses: Variable expenses change from month to month. These include utilities, food, clothes, personal care items and entertainment.

Combine your fixed and variable expenses to get an accurate picture of your monthly spending.

Step 3: Subtract Your Income From Your Expenses

To get a sense of how much breathing room you have in your budget, subtract your fixed and variable expenses from your net income.

Let’s say your monthly expenses add up to $6,000, and your monthly net income totals $6,750. This gives you breathing room of $750 per month ($6,750 – $6,000 = $750). For some folks, that gap might be uncomfortably small. If that sounds like you, consider cutting your expenses, finding alternative ways to boost your income or both.

Step 4: Monitor Your Spending

Once you’ve tallied your income and expenses, keep an eye on your spending.

For example, you might realize that you’re still paying for a streaming subscription that goes unused. Or, you may notice that your spending on dining at restaurants or ordering takeout has skyrocketed. Regularly examining your spending enables you to adjust your expenses so that you can hang onto more money.

Step 5: Set Your Financial Goals

A monthly budget might not be all that useful if you don’t set short-term and long-term financial goals.

As part of the budgeting process, make a list of these goals. That way, you stand a better chance of achieving them. In addition, you can fine-tune income and expenses to help steer you toward realizing your financial goals.

A short-term financial goal, which could take roughly one to three years to reach, might be slashing credit card debt or creating an emergency fund. Meanwhile, a long-term goal could be stashing money for retirement or earmarking money for a child’s college tuition.

Keep in mind that your financial goals should be flexible, allowing you to adjust them whenever the need arises.

Step 6: Choose Your Budgeting Method

Some experts recommend following the 50/30/20 budgeting method to funnel your income into three spending categories: 50% for needs, 30% for wants and 20% for savings.

Other budgeting methods include:

• Zero-based budgeting: Zero-based budgeting assigns a task to every dollar you earn. As a result, your income, minus spending and savings, should work out to zero each month. However, this doesn’t mean you should spend every penny of your income.
• Envelope budgeting: Envelope budgeting puts your spending on a diet. Using this approach, you put cash into envelopes that represent different spending categories. For example, you might stuff $500 into an envelope for groceries and $400 into an envelope for utility bills. Once the money in an envelope is gone, you’re not supposed to add cash until the next month. If you’d rather not deal with paper envelopes, you can adopt a digital method of envelope budgeting.

Step 7: Pick a Way To Build Your Budget

There’s no right or wrong way to build your budget. You can rely on a budgeting app, spreadsheet or template—or even pen and paper. What’s important is that you build your budget, update it every month and make adjustments as needed.