Steps to creating a monthly budget

We all know about the importance of a budget and how it can help keep track of spending, but if you’re like many people, they avoid creating one because they’re worried the process is confusing and complicated. The good news, setting up a budget can be very easy! No matter your income level or your expenses, developing a budget can allow you to better track your spending, work toward your savings goals, lower debt, and improve your overall financial health. To help you get started, here are six steps to making a monthly budget and improving your short- and long-term financial habits.

Calculate your monthly income

An important first step in creating your budget is determining the amount of income you bring home each month. This after-tax amount includes income from your employer and any money from part-time employment, bonuses, child support, seasonal work, or any additional sources. If your income varies from month to month, write down the lowest amount you expect to receive. Once you have all income sources tallied, this is your net income and will help create a clear picture of your take-home pay each month.

List all your expenses

Now that you have your total income, you’ll want to determine your expenses and how much you spend each every month. Try including as much detail as possible to help create a more accurate picture of your spending and how your income is divided. Remember to include some of your less frequent expenses like haircuts, car registration, or donations to charity. Here’s a list of common expenses you may want to include:

• Mortgage/Rent
• Cell phone(s)
• Internet
• Cable/Streaming services
• Water
• Electricity
• Gas (Home)
• Garbage pickup
• Groceries
• Prescriptions
• Deposits to savings
• Tuition
• Storage
• Pet care
• Entertainment
• Gym membership
• Home improvement
• Car payment
• Car insurance
• Gas (Car)
• Credit card payments

Put pen to paper

With your income and spending amounts now calculated, you’re ready to create your budget. Take a look at each column, how do the totals compare? Ideally, you want to have more money coming in each month than what is spent on bills and other expenses. If this isn’t your current situation, you will likely need to make adjustments, like trimming unnecessary expenses or finding ways to increase your income. If you determine you have some money left over after all your monthly expenses, you could put more toward savings or reallocate it to paying down credit card debt. If you’re worried about an imbalance, don’t be discouraged. Small adjustments to your budget can often result in big improvements.

Set up automatic bill payments

As you get your financial house in order with a structured budget, this can be a great time to set up automated bill payments as well. Not only do you ensure your money is going to the right places at the right time, but it helps lower the stress around missing a payment and having to cover late fees or penalties. Some services will save you money on your bill by setting up autopay, so consider exploring what companies offer these discounts. If you do not wish to set up automatic bill pay, but still want the assurance that you’ll pay your bills on time, you may consider signing up for email or text reminders that will alert you when a bill is coming due.

Monitor your progress

A budget is not something you want to set and forget; regular monitoring is important to keeping on track and achieving the results you want. If you set aside some time at the end of each week to review your spending, you become more knowledgeable of where your money is going each month and can eliminate any financial “leaks” before they become larger issues. To track your spending more easily, several helpful budgeting apps allow you to categorize your expenses, identify places of overspending, and gain a big-picture view of your financial habits.

Regularly review your budget

Before the end of each month, review your spending and saving activity and highlight any places that could reduce unnecessary expenditures. Did you use your gym membership this month? Is there a streaming service that could be eliminated? You do not need to devote a lot of time to this monthly review, but keeping the habit helps hold you accountable and flags any concerns that need to be fixed. Luckily, your budget is flexible and you can make changes based on your life circumstances. When you have a healthy budget, you can better adapt to unexpected emergencies or short-term goals, like a last-minute trip out of town. Revisiting your budget regularly also helps you make adjustments as new goals are added or if your situation changes, like getting married, changing jobs, or starting a family.

If you’ve been hesitant to start budget planning, it may be time to get started. Waiting too long may cause you to miss out on all the positive benefits a budget can provide, like lowering your debt, having more money for fun activities, and putting funds toward a long-term goal like college or retirement. Many great tools can help simplify the process and make a budget that is in line with your situation. When you feel in control of your financial life, instead of the other way around, you can make more confident money decisions, helping to put your goals within reach.

B3-NA-1-23