Introduction
One of the smartest things you can do to take control of your finances is to create a monthly budget; in a nutshell, budgeting allows you to see where your money goes, bank the amounts you don’t spend towards something later, and by doing so avoid that purchase you did not have to make.
Many people find budgeting challenging, but it does not have to be—with the right steps, it can be user-friendly and not a waste of time using a spending plan.
Budgeting is the practice of keeping track and organizing your income, itemizing your expenses, and establishing a plan for how much you can spend so that each month you spend with confidence.
A good budget will provide freedom, not restriction; you will feel comfortable and confident in creating a spending intention with your money. In this article, we will share with you simple strategies to create your monthly budget and create a solid foundation of responsible use of shared financial resources.
List Income
The first step in preparing a functional monthly budget is to write down all your income sources.
This could include your salary, freelance income, side jobs, business income, or any other steady income. Having a clear understanding of how much money you have coming in every month will help you better understand your spending and savings capabilities.
Be sure to write down your net income—how much money comes into your bank account after taxes and deductions.
If your income changes from month to month, just take an average of the last several months. Again, write down all of your income sources so that you have an accurate plan and can avoid overspending. A clear list of your income is the first step to making a successful and realistic monthly budget.
Track Expenses
If you want to effectively develop a monthly budget, accurately tracking your expenses is critical. Begin tracking everything that you spend money on, ranging from rent to groceries to small purchases you might typically never account for—like coffee or snacks.
Tracking your spending will help you understand where your money truly goes and highlight spending habits you didn’t know existed that might be weighing down your savings.
You can use expense tracking apps, spreadsheets, or simply a notebook—what is most important is that this habit is carried forward consistently. You should place your tracked expenses in categories (needs, wants, savings) to see where some tweaks might be necessary.
Overall, if you keep a consistent and accurate expense tracker, you will find it easier to eliminate unnecessary spending, stick to your budget, and be in complete control of reaching your financial goals.
Needs vs Wants vs Savings
An essential part of smart budgeting is knowing about needs, wants, and savings. Your needs are essentials like rent, food, utilities, and transportation. These are items you cannot survive without.
Your wants are the non-essentials, such as going out to eat, new clothes, or entertainment.
These are items that are nice to have but not required. Lastly, savings are the share of your income that you reserve for the future, new purchases for the future, emergencies, or investments for the future.
A simple way to think about budgeting is to follow the 50/30/20 rule. This means allowing yourself to use 50% of your income for needs and wants, 30% for your wants (which still should not exceed 50%), and 20% for savings.
Thinking about your spending in this way will help decrease overspending and help you achieve some balance, while also ensuring that some of your income is being saved. Understanding these three areas of your life is the basis of building a healthy budget for each month you move forward.
50/30/20 Rule
One of the most straightforward methods for formulating and managing a healthy and sustainable budget month to month is the 50/30/20 rule. It segregates your income into three categories: (1) 50% for needs or essentials, which is your required spending to maintain your bare-bones lifestyle (think groceries or utilities).
The 30% is for wants or discretionary spending, which is the discretionary spending you choose to spend on but could live without (think going out to eat and/or entertainment costs).
And the last 20% is for saving, eliminating, or funding investment for the future. Tracking your budgeting in this method provides a simple strategy for spending within your means while enjoying your present life and planning for future lifestyle goals! The 50/30/20 is an extremely basic model for budgeting that provides more balance to your budgeting while paving the path to stabilization and allowing for steady progress towards your financial independence!
Review Monthly
It’s imperative to review your budget every month to stay on course financially. Regardless of how well you plan, unexpected changes can occur regarding your income or expenses—for instance, you could receive a medical bill, experience an increase in costs, or find an extra income opportunity.
When you review your budget monthly, you can determine where you spent more than you thought you would, modify category amounts, and re-establish your goals.
By being aware of your money habits monthly, you can also prevent yourself from returning to a pattern of poor spending. You can use your bank statements or budgeting apps to help you track progress and remember what you can change.
This month-by-month effort may seem simple, but it is beneficial to make sure your finances stay balanced, your savings grow steadily, and your overall financial decisions improve month after month.
You might also be interested in reading:
6 Smart Ways to Save Money Every Month
How to Build an Emergency Fund in 6 Months
Conclusion
Calculating a budget over a thirty-day period is simple.
If you can establish a plan and stick with it, budgeting can allow you to assume more control over your finances and position yourself for a more financially stable future.
Knowing your income, tracking your expenditures, and following the 50/30/20 framework can help you take charge of your behavior, knowing where your money is going.
It’s also important to review your budget regularly, especially in times of life transition, to keep your budget accurate and flexible. A budget is not about diminishing your lifestyle—it is about ultimately providing meaning and purpose to your money and yourself.
When you know exactly where your money is going, saving is easy, stress is minimized, and you can envision your longer-term goals coming to fruition.
Start small, be consistent, and eventually you will see each rational choice you make to support your financial life adding up day by day.