Author: Shannon Hanes
Suppose you earn about $2500 monthly; you may wonder how you would pay for housing, food, health care, insurance, and entertainment without getting short of cash.
While that is a lot to cover with limited earnings, creating a budget can help you manage your finances by planning for every dollar you make.
This article will share tips to help you create a functional monthly budget.
How to Create a Monthly Budget
Whether it’s your first time creating a budget or you want to revise your old one, you can use these tips.
Calculate your Monthly Income
Figuring how much you make monthly is the first step to creating a monthly budget. This step helps you create a budget that fits your income so that you don’t run into debt.
When calculating your monthly income, you should only include a consistent source of income. So you can exclude the money you’d make off selling your old items, for example, as it is not a regular source of income.
If you’re a freelancer or are self-employed, try as much as possible to keep track of your earnings and contracts to help you manage irregular income.
Another helpful tip is to calculate your income using your take-home pay which is the amount you get after deductions like tax and insurance.
Track your Spending
One of the best ways to get a sense of how much you need to budget monthly is to track how much you spend for some months. While apps can help you track your spending, like Mint and GoodBuget, you can keep all your receipts and track your spending.
While tracking your expenses, you will discover where your money goes every month, and with that, you can create a budget. Another tip is to include annual payments.
You can divide your spending list into regular monthly bills, variable expenses (expenses that may change monthly like gas and entertainment), and unplanned expenses like car repair.
Choose a Budget Plan
After tracking your spending and calculating your monthly income, you can decide on a budget plan. A budget plan must include all your needs, some of your wants, and savings for emergencies and the future.
You should also look into your spending habits to see if they align with your goals; if they don’t, you can correct them by planning a budget that matches your financial goals.
A popular budgeting framework you could use is the 50/30/20 budget plan, where 50% of your income goes to your needs, 30% goes to your wants, and you put 20% into savings or debt repayments.
Track your progress
Once you’ve implemented your budget plan for a few months, you should track your progress and make adjustments where you need to. Your priorities may change as time goes on, so adjustments may be necessary.
Making a monthly budget can help you manage your finance, effectively. Also, your income, expenses, and priorities will change over time, so you should revisit your budget regularly, probably once a quarter of the year.