“Live your life to the fullest”, they say. “You only live once – YOLO.” Listen, keeping up with the Joneses… or the Kardashians, is a sure way to end up spending well beyond your means. If you have it like that then great! However, a majority of 20 somethings need a monthly budget to thrive and survive. Learn how to create a monthly budget with these tips!
“Don’t save what’s left after spending, but spend what’s left after saving.” -Warren Buffett
If you’ve never learned how to create a monthly budget, no one can truly be mad at you. You can’t even be mad at yourself for not knowing what you didn’t know. It’s like the saying, “You don’t know what you don’t know.”
It is, however, up to you to learn things once you realize you’re failing at a major aspect of your life. Having a monthly budget can save you. Literally.
So, you’re about to learn all about monthly budget planning tips, creating a monthly budget for beginners, the way your monthly budget setup can look, and how to create a monthly budget if you have a low income- such as me.
This post is about how to create a monthly budget.
How to Start a Monthly Budget
1. Gather and create a list of all your bills and expenses
The first thing you must do is figure out where your money is going. You can’t do anything else until you figure out what your monthly expenses are and how much it costs you each month.
A lot of people have the expenses or balances stored in their heads. I highly recommend getting it down on paper or in a spreadsheet.
There’s no excuse. If you don’t have a computer, write it down on paper. If you’d prefer technology, use the notes app on your phone or download the Google Sheets app and stop making excuses.
Seriously. Once you see the numbers you’ll either be shocked at how much it all adds up to be, OR you’ll reaffirm what you already knew.
2. Figure out your income or how much you get paid monthly
If you get paid every week, do the math. Let’s say you get paid every 2 weeks, add that up. You need to know how much income you make monthly if you want to create a monthly budget.
This really matters because when paying bills and such, you don’t pay them weekly, you get a light bill of the previous month.
This will help you realize a lot!
3. Determine your fixed and variable expenses
Fixed expenses are bills or payments that are typically the same every single month. It can be your rent or mortgage payment, your utility bills, subscriptions (Netflix, Hulu), phone bills, and car payments (car loans and car insurance). These bills are typically the same or around the same each month.
Variable expenses are things that can change weekly or monthly. Some of these expenses may include groceries, gas, entertainment (social outings), and/or books, take-out, or whatever else you spend your money on.
Really write these things down or include them in the list. Don’t keep it all in your head. You’ll realize that you’re spending more than you thought on these things or you’re okay.
4. Add it all up
After you have written down your fixed and variable expenses, add them up and see how much you’re spending each month on these things. Really go through your expenses in your bank account and write down how much you spent on gas, at Target, or on Amazon.
Place these expenses in a category and everything up.
5. Compare your income to your expenses
Determine if you’re spending above or below your means. If you find that you are spending way more money than you are saving, it can truly be depressing! BUT, don’t feel discouraged! The very fact that you’re taking the time to figure these things out is what will separate you from the rest of those who have no clue of what’s going on in their bank accounts.
All you have to do is shift your mindset and change some of your habits – which can be pretty difficult to break. I’m only being honest!
Even if you are living below your means, there still could be some improvement made to your expenses to help you begin to save even more.
Now that you’ve figured out all of this, you’re ready for the next major step!
Tips and Tricks: Monthly Budget Setup
1. Spend a certain amount of money for certain categories
Based on the categories that you discovered from the above tips (fixed expenses: monthly bills and variable expenses: everyday spending), decide the limit of each category.
It’s easiest to start with the fixed expenses first. If you know it costs $800 on rent each month, next to the rent category put $800. Subtract the $800 from your income (how much you get paid) and move on to the next. Doing this step is basically creating budgets for those categories.
After completing your fixed expenses, move on to your variable expense. This is the area where you can make the most adjustments.
Don’t forget to create a category for your savings or emergency fund.
Your emergency fund should be at least 3 months of your monthly expenses (your fixed and variable expenses combined).
Once you build it to 3 months, you can either start moving up to 6 months or you can start using the same amount of money that you were adding to your emergency fund to your debts to pay it off quicker.
2. Rethink your luxuries
If you find that you spend a ton on groceries, make a plan to spend less. Are you spending too much in the entertainment category (dining out, self-care things)? This is another place to adjust your spending.
Do you remember the Warren Buffett quote? “Don’t save what’s left after spending, but spend what’s left after saving.”
Be real with yourself. No one is saying that you can’t buy yourself a coffee from Starbucks or a meal from Chick-Fil-A. However, if you can’t afford it yet, just wait. Remember, when you start spending too much money, you’re spending it at the cost of your future.
If you overspend in one category, you’re taking money away from another category. Keep that in mind.
3. Keep track of everything on a weekly basis
This tip is definitely the changing factor of it all. I was someone who looked at my budget and monthly expenses at the end of the month only. What I realized was that by the time the end of the month came, it was already too late.
I either spent within my means or went beyond my monthly budget.
Pick a day out of the week to look into your spending and see how you’re doing in all of your categories. If you get paid every week, you can do this easily. Even if you get paid every 2 weeks or once a month, it’s still important to check things weekly.
It’ll determine if you’ve gone beyond your entertainment fee, or if your bills went up.
4. Set short and long term financial goals
- Short-term financial goals are goals that are meant to happen sooner than later. These goals can include traveling somewhere, adding a certain amount of money to your savings account this month, or paying a debt.
- Long-term financial goals are goals that are meant to happen in years to come. They can include investing in real estate and owning property, starting a business, or saving for retirement.
Keep in mind that when you’re setting these goals, you need to be extremely specific. A goal without a specific number or date is nothing but a dream.
For example, to have a goal of “I’ll pay off my car loan” may never happen. On the contrary, if your goal is to pay $2000 of your car loan by August, it’s much easier to track it each week or each month and see if you’re close or not.
It took me a while to learn this as well. I always wondered what went wrong. The goal was created, I put money aside, but still, I have a car loan.
Set a number to the goal and you’ll realize if you’re close to reaching the goal or not. This will also give you a sense of accomplishment and motivation the closer you get to reaching this specific goal.
5. Try the 50/30/20 Strategy
- 50% of your income after taxes should go to your necessities. These are your fixed expenses (Rent or mortage, Utilities, Car payments, etc).
- 30% goes to your wants. These are your variable expenses – maybe besides gas and groceries (those count as necessitites), but your entertainment things, shopping, or self care stuff.
- 20% goes to your savings and debt repayments. Pro tip: build your emergency fund first while paying the minimum balances on your debts.
In Closing
This is only the beginning of this series of money management tips. Doing things each month like creating a monthly budget or starting a monthly budget bullet journal page will certainly set you up for success. Financial freedom is the way to treat yourself really. Try delaying the instant gratification lifestyle that we are living in and do things that will help you in the future.
