Steps to creating a monthly budget

Regardless of income level or expenses, creating a budget can help a person track spending, work toward savings goals, reduce debt, and improve overall financial health. By following a structured approach, it is possible to gain greater control over financial resources, make informed decisions, and establish a clear path toward achieving financial stability and success. Here are six steps to guide the process of setting up a monthly budget and fostering healthier financial habits.

The Potential Benefits of a Budget

A budget can help a person track their income and expenses and potentially prevent overspending and debt accumulation. By providing a framework for setting and achieving savings goals, a budget may help improve financial stability. Additionally, a well-planned budget can enable informed decision-making and highlight which adjustments may need to be made to adapt to changing financial circumstances.

Calculate Income

An important first step in creating a budget is determining the amount of monthly income. This after-tax amount could include income from an employer and any money from part-time employment, bonuses, child support, seasonal work, or any additional sources. If income varies from month to month, write down the lowest amount that might be expected. Once all income sources are calculated, this is your net income and can help create a clearer picture of take-home pay each month.

Make a List of Expenses

The next step is to identify monthly expenses and track spending. Including as much detail as possible can help create a more accurate picture of how income is divided and spending is managed. Remember to include less frequent expenses such as haircuts, car registration, or charitable donations. Below is a list of common expenses to consider:

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

Create a Budget

With income and spending amounts now calculated, you’re ready to create a 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 the current situation, adjustments may need to be made, like trimming unnecessary expenses or finding ways to increase income. If money is left over after all monthly expenses are covered, more money could be put toward savings or reallocated to paying down credit card debt. If there is an imbalance, don’t be discouraged. Small adjustments to a budget can often result in big improvements.

Set Up Automatic Bill Payments

As finances are organized through a structured budget, it can be a great time to set up automated bill payments as well. Not only does this help ensure money is going to the right places at the right time, but it may help lower the stress around missing a payment and having to cover late fees or penalties. Some services may save you money by setting up autopay, so consider exploring what companies offer these discounts. If you prefer a more hands-on approach, but still want the assurance that bills will be paid on time, consider signing up for email or text reminders that will send alerts when a bill is coming due.

Monitor Progress

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

Review Spending and Saving

Before the end of each month, review spending and saving activity and highlight any places that could reduce unnecessary expenditures. Was a gym membership used this month? Is there a streaming service that could be eliminated? This monthly review does not need to be time consuming, but keeping the habit may help hold you accountable and flag any concerns that need to be fixed. Luckily, budgets are flexible and changes can be made based on life’s circumstances. When a person has a healthy budget, they may be better able to adapt to unexpected emergencies or short-term goals, like a last-minute trip out of town.

If you’ve been hesitant to start budget planning, it may be time to get started. Waiting too long may cause missed opportunities, like lowering debt, having more money for fun activities, or 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. The more you feel in control of your financial life, the greater confidence you may have in money decisions—helping to put financial goals within reach.

B2-NA-11-24