How To Create A Realistic Monthly Budget

When people hear the word budget, they often check out. To some, it is not a very fun topic (unless you’re like me and you totally geek out over this stuff) and thoughts of spreadsheets and complicated formulas come to mind. Some people have never really been taught how to budget so they run for the hills when the subject comes up. No matter what your situation is, I’ll show you how to create a realistic monthly budget you will stick with even if you’re not good with money.

More often than not, people tend to make budgeting more complicated than it really is. And I get that! I used to too. People also mistakenly see a budget as being very restrictive. When in reality a budget opens up a whole world of opportunity. You see, once you have a well-written monthly budget in place, you are free to do whatever you want, whenever you want. It’s YOUR roadmap and no one else’s.

why should you even stick with a budget?

Having a budget in place that you follow every month ensures that you will have enough money to do not only the things you need to do, but also the things that you want to do. When you have a budget set up, you are more likely to get your debt paid off faster. Not only will you get out of debt sooner, you will also be more likely to stay out of debt.

Budgeting helps to organize your spending and know where all of your money is going.

Have you ever said to yourself, “I just don’t understand where all my money went?”

Or, how about, “I seem to always spend my paycheck before I even get paid?”

Do you ever seem to have more month than you do money?

If you answered yes to any of those questions, then my friend, you need a budget. Believe me, I completely understand where you are at. I answered “yes” a time or two to all of those questions.

When my husband and I finally go to the point of being sick and tired of being sick and tired, we started a budget.

how to make a budget you will stick with

Let’s get into the nitty gritty of how to make a budget you will stick with. I promise this will not be painful. I also want you to remember this – this will take practice and patience. But, I know that you really want to change your financial picture and I will be your biggest cheerleader! Ready? Let’s do it!

1. gather your bank statements from the last 3 months

The first thing that you will need to do when putting your budget together is gather your bank statements from the previous 3 months. This will give you an idea of where you money is going.

If you are a saver, you may not have as many transactions on those statements. Your budget will let you know if you need to loosen the reigns a little in areas like giving more, or taking your family on a vacation, or bumping up your retirement.

On the flip side, if you are a spender, your budget will tell you where you need to tighten things up a bit. Like I said before, this is your budget. You will design it for where you are in life and what you want to accomplish financially. Let’s move on to the next step.

2. determine your monthly income

Your monthly income is going to be the top line of your budget. It is your starting point. Consider all of the sources of where your money is coming from.

This is your take-home pay from your job, child support, alimony, retirement, pension, social security, etc…if you work a side job, include that here. If your income varies month to month, take the lowest amount of money you have brought home.

Add all of those items together and this is your monthly income.

3. determine your fixed monthly expenses

Now that you know what your monthly income is, write down all of those expenses that you have every month. These are things that you know you will have to pay every month. They often look like this:

  • Mortgage/Rent
  • Food (don’t forget your furry family members)
  • Utilities
  • Car payment
  • Car insurance
  • Credit Card payment
  • Student Loans
  • Cell phone
  • Medical expenses
  • Childcare/Tuition

The amount of money you spend on some of these items may change from month to month such as utilities and groceries.

For example, depending on where you live, your electricity bill may be higher in the summer than in the spring and fall. I usually take the average of the last 3 months. You will want to create a line item for each of these expenses.

Don’t worry about adding everything up right now. We are just getting things on paper so we know what we are working with. Keep going until you have all of your fixed expenses written down.

4. determine your fluctuating expenses

Fluctuating expenses are those items that may or may not happen in any given month. These include things like:

  • Birthday gifts
  • Restaurants/Dining out
  • Clothing (adults & kids)
  • Entertainment
  • Babysitter
  • Hair coloring (if you can skip a month on this I am SO jealous)

As I mentioned before, these are things that change from month to month but often get overlooked or forgotten about. That can wreak havoc on your budget if missed.

Please know that it will take a good 3 months of putting your budget into practice before including these fluctuating expenses as a habit.

Think of it as reprogramming your brain to remember that even these varying monthly items have a place in the budget and must be accounted for. I promise, the more you practice, the easier it will get.

5. total all items for a zero-based budget

The goal of any budget is for the very last line to be zero! Let’s take a look at that:

Total Monthly Income – Total Monthly Expenses = $0

Do you see what we did there? We took all of those monthly expenses we wrote down and subtracted them from our total monthly income.

Now, if you have money left over, you will need to assign that to a category. If you’ve allocated money to all of your expenses, this left over money can go into savings or towards knocking out your debt.

If, after subtracting your total monthly expenses from your total monthly income, you have a negative number, you will need to go back and adjust some of those expenses.

It might be time to cut cable, or minimize the amount of times you visit restaurants. This may take going thru several times but you really want a zero-based budget, where every dollar you have is given an assignment.

This is how you get ahead with money.

6. give yourself flexibility and room for changes in your budget

Your budget will change from month to month as your needs change. For our family, we have a birthday or two just about every month from July to November.

Those fluctuations definitely need to be factored in our budget. The start of the school year, looks different from the end of the school year. Summer months often include camps or childcare if you are a working parent.

Different seasons of life will determine what needs to be included in your budget. For example, if you have a baby you are probably spending a lot of money on diapers.

When your baby grows out of diapers, there will more than likely be something else that will need to be accounted for (because ya know, there is always something with those kids).

One of the most rewarding change that you will ever see in your budget is when you start to see debt payments go away because you’ve paid off those bills. Imagine all of the money you will have to go toward other goals you have when you no longer have to factor debt payments into your budget.

I promise that if you make a budget using the steps I have outlined for you, you will begin to see progress toward your financial goals.

creating a budget that you will stick to

I want you to give yourself the biggest pat on your back because YOU MADE IT. I am so proud of you!

Give yourself a good three months to iron out any kinks in your budget, but keep at it. Each new month repeat all of these steps and you will be well on your way to a zero-based budget.

I’d love to hear how you are doing with your budget. Leave a comment below and let me know.

Cheering you on!

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