How to Create a Monthly Budget

4 Basic Tips to Create Your Budget

The other day a friend of mine told me that it was hard to save money. They are living paycheck to paycheck and half of their paycheck is spent before they even get it. They have gotten themselves into so much debt and are so overwhelmed they don’t even know where to begin. When I asked if they had set up a monthly budget, the answer I received was that we try to set up a budget, but usually fail and add more to our credit cards because we run out of money.

Creating a budget can sometimes be frustrating, especially if you don’t know where to start. If you don’t tell your money what to do, then at the end of the month you won’t know where your money went. By creating a budget, you give yourself control over your money and where it goes. When sitting down to create your budget, there are four simple things to remember:

  1. Don’t Wait Until the Month has Started
    Pick a time towards the end of the month to set up your budget. If you have a spouse or partner, be sure that they are included each month. If both parties aren’t on board with the budget, it is likely that your budget will fail. When April and I were first getting out of debt, I was terrible at including her in the process of creating our budget. I would sometimes lose my cool when I would see that she spent some money that I had allocated for something else. But how did she know? I didn’t even tell her where the money was supposed to go. Once we were out of debt and I had repaired my credit, April took over doing the budget. Unfortunately the tables only turned and she prepared the budget and I would blow it. Try setting up a date night, have some treats and create the budget together. If you are single and you struggle with finances, find a financial accountability partner. Let them know what the budget looks like and at the end of the month, let them know how you did.
  2. Figure Out Where Your Money Goes
    If you are setting up a budget for the first time, you may not know how much money you spend in every category of a budget. Grab all of your bank and credit card statements and start categorizing where your money goes. This is actually one of my favorite things to do when working with my clients on setting up their budgets. Normally my clients start by telling me that they don’t have any extra money. But, when you do this exercise you begin to see exactly where your money goes. When I was setting up our budget at first, I was surprised at how much I had been spending at the gas station by my office. I was spending $60-$80 on drinks, candy, chips and hot dogs.
  3. Tell Every Single Dollar How it Will Be Used
    When I first started setting up a budget, I wasn’t exactly sure how much money I was taking home after taxes. If this is you, grab your pay stubs and write down next month’s income into your budget worksheet or software. Be sure to include all income that comes into your pocket. If you donate plasma, do side jobs, get a bonus or make extra commissions, include it all. This will show you how much money you have to spend on bills, clothes, entertainment and how much money will be put into savings.  I like to set up categories such as monthly bills, charity, everyday expenses, debts, rainy day funds and savings when I set up my budget. Having categories set up allows you to determine how much money you will be spending in each category. Make sure that every dollar is spent in each of your categories. If you have some extra money left when you have allocated money for each category, you shouldn’t think that it is extra money to go and spend and not have to account for it. If you want to blow it, then create a category for blowing it. At least this way, you are accountable for where the money went.
  4. Track Expenses to Know Where Your Money Went
    Just because it is called a monthly budget doesn’t mean that you should only review it once a month. Keep tabs on your spending so you know how you are doing. If you had to spend $150 extra on car maintenance, call an emergency budget meeting and discuss where that $150 is going to come from. Remember the coined phrase “Robbing Peter to pay Paul”? That is exactly what needs to be done.

In 2014 Bankrate conducted a survey which showed that 18% of Americans don’t keep a budget, leaving 82% keeping a budget. Which crowd are you in?

Here is a little secret that I will share with you; for the first couple of months you are going to be off on your budget. It is OK. Don’t lose it and say I am done with this budget junk. The more you sit down and work on your budget, the easier it will become and you will nail it going forward.

Question: What are some of the tools and methods that you use to keep a budget? You can leave a comment by clicking here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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7 thoughts on “How to Create a Monthly Budget

  1. Excelent article. But I think most people think a budget is track expenses and being accountable for it, when in reality is more important to plan ahead how you will spend your money. Including a personal allowance on entertainment so you are able to use it for your personal choice rather than spend money already allocated. Plan and stick to it!

    • Isabel, I agree that some people think that budgets are just for tracking their expenses. And like you said, it is important to plan ahead on how you will spend your money. I think that is why point #3 in my article tells people that they need to tell every dollar where it is going to go. Thanks for your comment.