Budgeting seems simple—but without the right gameplan, it can feel overwhelming. If you’re the captain of your financial destiny, the right budget is your personal playbook. It’s the worksheet that gets on the board.
Without a playbook for personal expenses, it’s tough to know what to do to win. And losing can get….expensive.
A monthly budget is the gameplan with all the winning plays. Creating a personal budget can feel overwhelming or unfamiliar. So, whether you’re brand new to budgeting or a rising star, we’ll walk you through how to start winning at personal finances without breaking a sweat.
Why Make a Budget?
There are a lot of different reasons to create a budget, so the type of budget you make will depend on what your goals are.
You might want to save money, set up an emergency fund, or establish some spending limits to achieve your money goals. Maybe you have new bills like car payments, medical bills, or other expenses to deal with.
Before diving into the specifics, let’s understand why a personal monthly budget is so important. Like we said, a budget serves as a plan for your financial journey, allowing you to:
- Track monthly income and monthly expenses: Know exactly how much money you have coming in and where it’s going out.
- Control spending: Prevent overspending by giving yourself specific amounts to spend on certain expenses and expense categories.
- Save so you can invest wisely: Find opportunities to save extra money so that you have more money in your bank account. Once you save money, you can start to think about whether investing makes sense for you.
- Prepare for emergencies: Saving money lets you improve your financial safety and build an emergency fund.
Getting Started: Pull Everything Together
To kickstart your budgeting, you will need to gather a good amount of necessary information about your financial health and your finances. You should aim to know the following things about how you’re making and spending money:
- Monthly Income Details:
- Total monthly after tax income (salary, freelance earnings, etc.)
- Any additional income sources (tips, side gigs, investment income, etc.)
- Expense Categories:
- Fixed (rent payments and mortgage payments, utilities, health insurance premiums, cell phone bill)
- Variable (groceries, transportation, entertainment)
- Debt payments (credit card payments, student loans, personal loans)
- Savings goals (emergency fund, retirement savings)
- Use bank statements to accurately track and categorize spending
It might not make sense at first, but one of your expenses (rent) can actually help with your credit. Rent Reporting from Kikoff lets you build credit with the rent you already pay!
Step 1: Calculate Your Total Income
Start by determining your total monthly income. This includes any salary, bonuses, tips, freelance income, or any other sources of income you receive, including pay from a second job.
Step 2: List Your Monthly Expenses in Categories
Next, list all your monthly living expenses. Put them into one of two categories.
The first type of expenses is called a fixed expense (something that is constant each month like rent or loans).
The second type of expenses is called a variable expense (something that changes from month to month).
Some common examples of these expense categories include:
- Fixed Expenses:
- Rent/mortgage
- Utilities (electricity, water, gas, internet)
- Loan payments (car loans, student loans)
- Insurance premiums (health insurance, auto, home)
- Variable Expenses:
- Groceries
- Transportation (fuel, public transit)
- Dining out or getting takeout
- Entertainment (going to a movie or concert)
- Clothes
Step 3: Track How You Spend Money
For one month, track all your expenses and bills diligently. Use a full budget calculator, budget spreadsheet, budgeting app, or simply pen and paper.
Record how much you spend on every purchase—no matter how small. This will give you a clear picture of where your money is going.
Step 4: Calculate Your Net Monthly Income
Subtract your total expenses from your gross income/total income to determine your net income. This number shows whether you are gaining or losing money at the end of each month.
Step 5: Set Goals
Based on how you spend your money and your financial priorities, you should set realistic goals. These could include:
- Building an emergency fund by padding your savings account
- Paying off debt
- Saving enough money for a vacation, big purchase, or any other short term goals
- Contributing to an investment account for long-term financial goals like retirement
- Building up your savings account for the first time
Step 6: Create Your Monthly Budget
Now that you have a clear understanding of your income, expenses, and financial goals, it’s time to create your budget:
- Set aside a portion of your income for fixed expenses like rent, utilities, and loan payments.
- See if you can estimate how much you typically spend on variable expenses each month.
- Set aside a percentage of your income for savings and potentially investments.
- Prioritize paying off debt, especially if it’s high-interest debt by budgeting a specific amount for debt repayment each month.
- Include an amount of money as a buffer for unexpected expenses.
Step 7: Keep Tabs and Adjust
Your budget isn’t static—it’s a dynamic tool that requires regular monitoring and adjustments. Here’s how to keep your budget on track:
- Review your budget monthly to ensure you’re staying on target.
- Adjust your budget if you find yourself going over the amount you budgeted for on a regular basis.
- Celebrate the wins! Feel good about paying off debt or reaching your savings milestones.
Once you get the hang of monthly budgeting, you’ll be able to make a budget for the whole year, tracking annual expenses so you can hit long term goals.
Tools and Resources (Eg Monthly Budget Worksheet)
To simplify the budgeting process, you can consider using a wide range of budgeting software and budgeting apps like YNAB (You Need a Budget), among others.
There are a lot of budgeting apps out there, but they generally all work the same way: they connect to your bank account and/or other financial accounts, track your spending and then put your expenses into categories for you so you can see where your money is going (like we mentioned earlier!).
A worksheet is a great start to get you planning and managing the month’s budget. Here are a couple options to kick things off: the Federal Trade Commission offers this free tool that is easy to use and comes with budget categories like housing, food, and transportation already laid out.
Get Budgeting!
Creating a personal monthly budget is an important step towards feeling financially empowered and stable.
While the process may seem daunting at first, remember that it’s a learning experience. Anything related to money, whether it’s income, savings, taxes, or expenses, can bring up strong feelings though. So if it gets frustrating, that’s okay, because most people feel the same way when they start out.
Budgeting is one of the best strategies to start achieving your personal finance goals. Start today, and you’ll be amazed at the positive impact a well-managed budget can have on your financial cushion and life.
Whatever your long-term goals are, Kikoff provides fair, effective, and simple tools that empower you to meet your financial goals.