How to Create a Monthly Budget? You need to budget every month before the month starts. Why? Because forward-thinking is how to get ahead in life and with money.
Regardless of your income and financial condition, a budget is one of the most important tools at your disposal.
A budget simply tells us how much money is coming, how much is going out, and where it is going – and this is the essential information for everyone.
Here’s How to Create a Monthly personal Budget step by step.
How to Create a Monthly Budget
1. Calculate Your Income
Now that you know when to make a budget. You need to identify your income. “Income” is any money you want to receive during that month.
When calculating your income, be sure to include all sources. If you have multiple jobs, attend a favor, or receive child support or government benefits, those values should be included in your monthly income.
However, If you work as a W-2 employee for an employer, they will take care of all tax withholding. So that you can use your after-tax income to make your budget.
If you are self-employed, you must deduct your self-employment tax before calculating your monthly income.
2. The 50/30/20 Rule
When it comes to budgeting, it is generally better to have a motto. As you are less likely to be consistent with a complex budgeting process. A popular budget strategy is the 50/30/20 rule.
In it, you spend about 50% of your money on post-needs, not wanting more than 30%, and at least 20% on savings and loan repayments.
A full 50% of your income should be in the budget for necessary expenses, according to the rule. “This includes housing, utilities, auto payments, groceries, gas, minimum monthly loan payments, insurance premiums, etc.”
The next portion of your net income, 30%, should allocate to you for personal expenses, or things you really want but don’t need. “These are items you could have cut, such as eating out, hobbies, entertainment, gym memberships, and fun, monthly membership boxes”
The last 20% is the most essential part of your budget because what you do with it will largely determine whether you are financially successful or not.
This part of your budget goes towards your financial goals – repayment of the debt, emergency fund savings, household savings, and investment.
3. Budget for Your Money Goals
Think about where you want to be financially in the next 5, 10, and 20 years. What about next year?
Today when you start building the life you want tomorrow, make a money goal, where you want to be.
Once you have these goals in mind, you need a plan to make them. Save money, become debt-free, invest in retirement – keep these goals in your budget. This is how you make them!
4. List All of Your Expenses
List out All of Your Expenses to determine what is happening.
You can review your credit card statement as well as determine where your money is going for the last two to three months for your bank statement.
Some expenses are fixed, which remain the same month to month, and others are variable and often change, such as groceries and entertainment.
With variable expenses, it is helpful to look back at your receipts from the last few weeks or months and calculate the average.
READ ALSO: What Is Net Income And How it Works?
5. Create and Track Your Budget
After that you know the necessary information for the budget, the time has come to actually make the budget.
While you can easily track your monthly spending habits using pen and paper, there are several budget apps and software programs that make this process easier.
Once your budget is created, whether through an online platform or on paper, track your progress.
You will quickly see that there are some categories in the budget where adjustments are needed.
You may find that you are spending too much money on entertainment, and not spending enough money on savings.