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More than 1.5 million people file for bankruptcy every year in the US and those figures are climbing. Even if you’re not in the bankruptcy ballpark, you might only be one bad financial decision away from losing your savings.
If you don’t already know how to manage your finances, don’t feel ashamed. You’re making the decision now to learn how to make a monthly budget, and that’s what counts. Plus, learning how to budget is 100% doable and it will feel amazing to watch your bank balance increase.
This step-by-step guide will help you make a budget that you can stick to so you can save money and find financial freedom.
Step 1: Calculate Your Average Monthly Income
You can only figure out how to make a monthly budget once you know how much you have to spend. This will be straightforward to find out if you are a single person with one full-time salary.
But if you have a partner, then you should make a joint monthly budget as it’s likely that you split household costs.
If you’re self-employed or run your own business, you might have fluctuating costs. Look at the last six to 12 months of income and take an average to get a rough figure.
Step 2: Track Your Average Spending
Before you learn how to budget monthly, you need to track your spending habits to see where you need to make changes. Divide your spending into categories, for example:
- Groceries
- Misc food e.g. take out and restaurants
- Essential shopping
- Retail shopping
- Household bills
- Entertainment
Splitting your past outgoings like this will help you realize exactly how much of your spending is unnecessary. There are lots of great simple personal finance tools you can use to help you calculate these percentages.
Step 3: Consider Your Financial Goals
You likely want a monthly budget because you want to start saving money monthly for your financial goals. These are some examples of money goals you might have:
- Get out of debt
- Start a retirement fund
- Create an emergency fund
- Save for life milestones e.g. wedding
Having a clear and realistic financial goal to work towards will help you stick to your monthly budget. When you have that figure, work out how much you need to save and for how long to achieve that goal.
Step 4: Design Your Budget
Next, divide portions of your income to pay for your outgoings. Always start with how much you want to save, then necessities, and then optional extras. Write down your budget so that you remember it and make sure it is realistic.
How To Make a Monthly Budget in Five Simple Steps
Figuring out how to make a monthly budget sounds daunting but creating it is the easy part. Sticking to it is much harder! As long as you keep your financial goals in mind, you’ll remain determined and focused.
You can never know too much about investments and savings. Browse our other financial articles for more top tips!
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