How To Start A Monthly Budget
Creating a monthly budget that aligns with your financial situation and goals is something that I have always stressed the importance of. Having some form of budget is imperative for many reasons – it helps you keep track of the money going in and out of your bank account, it ensures that you’re able to cover your day-to-day expenses as well as save for large financial goals and emergency expenses, and, most importantly, it promotes financial literacy. Nonetheless, most people don’t even know where to begin when it comes to starting a budget and planning for their financial future. In this blog post, I will be teaching you the basics of budgeting, from what to gather, future savings, and investing, all with the goal of home ownership in mind.
In order to create a budget that’s perfect for you, we need to define what exactly “budgeting” means. Many people consider budgeting to be just a list of the bills one has to pay. While this is indeed an element of budgeting, it’s not the whole picture. An actual budget is a limitation on the amount of money that is spent within a designated time frame. For the purposes of this article, we will be creating a monthly budget.
To start off...
we need to get three months of our spending on paper. It’s important to look at all accounts when it comes to this step – for example, if you’re married and you and your spouse have both joint and separate accounts, you need to look at spending in each of those accounts. Once you’ve done this, you’ll need to categorize each expenditure into these categories:
- Survival – this category encompasses housing, food, transportation, utilities, and medical bills. These are all mandatory expenses; this category does NOT include any expense that would be considered recreational.
- Maintenance – these expenses include maintenance (including healthcare) on your big assets, like your car, house, children, family, pets, and yourself.
- Lifestyle – this is where you categorize things that you spend money on, but are not crucial to your survival. Pedicures, grabbing drinks, going out to eat, going to a show, etc., are examples of activities that would fall under this category.
- Charity/Giving Back – this category would cover any charitable giving and or donations.
When categorizing your budget, it’s essential to ask yourself what falls under survival versus lifestyle. For example, eating out at a restaurant would be considered a lifestyle expense, whereas going to the grocery store would be a survival expense. If you’re not quite sure what category an expenditure would fit under, ask yourself – do I literally need to spend this money in order to eat, have a roof over my head, or have transportation to work? If yes, it’s a survival expense – but if no, it’s a lifestyle expense.
A successful budget is typically 70% of take home income, with 30% being dedicated towards paying off debts and investing.
If you’ve never budgeted before, it may seem daunting to just live off of that 70%. Here are some of the ways that you can cut down on unnecessary expenditures to get to where you need to be in terms of your budget:
- Decrease liabilities – this step involves taking a close look at all your expenses and determining what you can realistically eliminate from what you’re spending regularly. While this may mean sacrificing in some areas (driving a less expensive car, moving to a less expensive area, etc.), it’ll be worth it in the long run for your financial goals!
- Evaluate assets – if after step one you find that you still have too much debt to overcome, you’ll need to find assets to sell. Items such as jewelry, instruments, old laptops, and phones can easily be sold to earn extra money to pay off debts. Try to sell off things that you no longer use on a regular basis in order to create this extra cash flow.
- Increasing income – there are a few different ways to perform this step, and the first one involves determining whether or not you are an asset or a liability at your current job. Figure out where you can add value, and set out to negotiate a raise or a way in which you can perform extra work for extra compensation. If this is not an option, try a side hustle – babysitting, rideshare driving, grocery delivery, or even freelance work in your skill set! Anything you can do to get you closer to that 70% and feeling more comfortable with your financial situation is definitely something you should be doing.
I know that these steps will take serious commitment and sacrifice.
However, it’ll be well worth it to reach your financial goals! I hope that this article has inspired you to create a budget and take tangible action towards your monetary aspirations. If you have any questions or want to join me and countless others on this budgeting journey, be sure to follow me on my social media channels and continue to read my blog for further financial tips and tricks!
