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Your Complete Guide To Creating A Monthly Budget This Year

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budgeting for dummies

Creating a monthly budget is one of the most important aspects of personal finance. A monthly budget can show where you’re overspending, where you need to make adjustments, and how far along you are toward reaching your financial goals. We’ll show you how to budget painlessly!

Everyone needs a budget, no matter how much or how little money you make. A budget does a lot more than track spending. A good budget can help you absorb unexpected expenses like car repairs and medical bills.

A monthly budget can help you find extra money for your savings goals. Essentially, a budget shows how much money is coming in, how much is going out, and where it’s going.

What gets measured gets managed.

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Trying to reach your financial goals without a budget is like trying to reach a destination without a map (or Google Map here in the 21st Century). You might get there eventually, but it will take a lot longer, and you will waste a lot of money along the way.

Don’t think of a budget as a punishment, this thing that is stopping you from spending your money the way you want. Nothing can do that, not even the world’s greatest budget.

Instead, think of a budget as a partner that will help you reach your financial goals.

How Do I Make A Monthly Budget?

The good news is that these days thanks to all of the great budgeting tools available, you’re no longer stuck with the old Excel spreadsheet method of budgeting.

No, budgeting apps have brought creating a budget into the current Millennium.

Mint

Mint is such a great way to automate budgeting so that it’s painless. No more sitting down every month and going through bank statements to see where you spent your money.

Once you create your account and link your bank and credit card accounts, Mint automatically downloads your transactions and categorizes them for you.

This may need some tweaking, but Mint mostly gets it right.

mastering mint book

We literally wrote the book on how to make a budget with Mint!

You Need A Budget

We love Mint, but there is a better budgeting tool for anyone who has irregular income. Maybe your monthly income varies because you have a side hustle or have a commission-based job like a real estate agent.

If that’s the case, Mint and similar budgeting apps are a bit harder to work with. But You Need A Budget (YNAB) is just what you’re looking for.

YNAB uses a method known as Zero-Based Budgeting. 

Zero-based budgeting is a method that encourages you to allocate every penny of your monthly income toward expenses, savings, and debt payments. That means giving every dollar a job. In other words, only budget what you have right now.

What do you have? You have the money you made last month. That’s the known quantity since you have irregular income. With YNAB, you’ll budget the money you made last month for the following month.

YNAB’s learning curve is steeper than Mint, and it can take a month or two to make its system of zero-based budgeting work, but it’s the best monthly budget system if your take-home pay is up and down.

The Envelope System

If your spending habits are out of control and you’ve tried and failed other budgeting methods in the past, the envelope system might be the solution for you.

You don’t need to use this method for essential expenses like housing and utilities. Those aren’t the categories people are overspending in.

Instead, you use the system for variable expenses that you do overspend on like food, entertainment, and drinks. Write the name of the spending category on the front of each envelope and put the budgeting amount of money in each.

You can do this monthly but weekly is better because it’s not ideal to carry around a lot of cash. Every time you spend in an envelope category, you pay with money from the designated envelope.

Once an envelope is empty, you’re done spending in that category. Simple!

You can do this the old fashioned way with actual envelopes, but there are budgeting apps that simulate it like Goodbudget and Mvelopes.

What Is a Good Budget?

A good budget is one that you can stick to! That’s a bit flip; there’s more to a reasonable monthly budget so let’s go over some basic budgeting principles and a few budgeting tips.

Be Realistic

If you have debt from credit cards or student loans, you might decide to create a budget to get rid of that debt quickly. And that’s great, debt payments are money you could be saving, and high-interest debt is an emergency.

So you create a budget that is pared to the bone. I’m talking ramen dinners and single-ply toilet paper level of bare bones.

But this is a mistake.

A budget, like a diet, that doesn’t allow for any wiggle room, any pleasure is not sustainable.

If you try to implement a budget that is too strict, you’ll fail.

Make Adjustments

Your first budget should not be your last budget. A budget is a fluid thing, and you should make changes to it as your financial situation changes.

If you get a substantial raise, you don’t want to just put any money left over after your monthly expenses into your savings account. You want that money to work for you. 

It’s a Team Sport

If you live with a partner or spouse, budgeting becomes a team sport. The two of you have to agree on how you’re going to budget your money.

Not down to the penny, but you do have to have a level of general agreement.If you don’t, you’re going to have a lot of fights about money.

 Budget for the Unexpected

How can you budget for the unexpected? You have no way of knowing what an unexpected thing will cost?!

You need to be saving money in your budget each month for an emergency fund. An emergency fund is the way you deal with unexpected expenses. How much?

Ideally, your emergency fund will contain 3 to 6 month’s worth of necessary expenses.

That’s a lot of money, and you don’t have to come up with it in two months, but it should be at the top of your list of savings goals because an emergency fund can save you from a severe financial crisis.

Budget for the Expected

By expected, we mean expenses that aren’t monthly but are regular. These can be things like your property tax bill, a yearly family vacation, or Christmas.

People often seem blindsided by these kinds of expenses and scramble to come up with the money to pay them.

But these expenses happen at pretty much the same time every year, so it’s not as if you didn’t know they were coming. Budgeting a little money each month for significant, expected expenses will allow you to absorb them more easily.

Want to get your money under control?

This is our guide to budgeting simply and effectively. We walk you through exactly how to use Mint, what your budget should be, and how to monitor your spending automatically.

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How To Get Started Budgeting

Don’t be intimidated if this is your very first budget! Budgeting isn’t complicated or time-consuming. Follow these steps, and you’ll be a budgeting pro in no time.

Choose Your Tool

We explained a few different budgeting tools above. Mint is free to use, and YNAB offers a free 34-day trial. Goodbudget has both a free version and a paid one, and Mvelopes starts at just $6 per month.

Try a few options out until you find the one that works best for you.

Gather Necessary Information

If you’re going to use budgeting apps, you’ll need to provide them with some information like account information for bank accounts, credit card accounts, student loan accounts, investment accounts, etc.

Have account numbers, user names, and passwords before you get started so you can get all of the necessary information entered quickly.

If you’re understandably nervous about handing over such sensitive information, do some research on the security measures these apps have in place to keep your data safe.

Make an Appointment

This only applies to those who share finances with a partner. Let them know that you want to work on a budget with them, tell them the information they need to provide (what we discussed in the above point) and schedule a time and day to sit down and create your monthly budget together.

Making a budget is not the kind of thing you should spring on your partner.

Make a List

Make a list of all of your income sources and all of your expenses. These things are going to be the entries you make in your budget, so again, you want to have them on hand when you sit down to create yours.

What Is the 50/30/20 Budget Rule?

What’s missing from the last section? Yes, how to budget your money! We wanted to give that its own section. We like to keep things simple, and the 50/30/20 budget rule is straightforward.

Editor's Note

The 50/30/20 Rule doesn’t require creating detailed budget categories. It’s broken down into three broad segments, essential expenses, discretionary expenses, and financial goals.

Can you make budgeting harder?

Budget chart

Of course, but why would you!? The money you’re dividing up is your net income, your take-home pay. This is a summary of the rule; we did a deep dive that will explain it more fully.

50%: Essential Expenses

Half of your net income is budgeted for things you must pay for, which can include:

  • Housing
  • Auto expenses
  • Groceries
  • Insurance
  • Utilities

30%: Discretionary Expenses

Thirty percent of your net income goes to non-essential spending. This is the fun stuff like:

  • Dining out
  • Entertainment
  • Drinks
  • Gym membership

20%: Financial Goals

The final 20% is the most essential part of your budget and one that often gets overlooked. If you don’t budget money for financial goals, you may spend all of your monthly income. Financial goals include:

  • Debt repayment
  • Saving for a home
  • Saving for a child’s education

20/30

If you have high-interest debt, like credit card debt, you should seriously consider swapping around the 30% and 20%.

Meaning you should budget 30% of your net income to getting that debt paid off as quickly as possible and cut back your discretionary spending to 20% of your budget.

No, it isn’t fun, but neither is being bogged down by credit card debt.

That’s All There Is To It!

Creating a monthly budget is one of the fastest, easiest things you can do to take control of your finances and put yourself on the path to financial success. If you’ve been putting it off, use this guide to help.

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Candice Elliott - Senior Editor Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.
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