*Disclaimer: We’re not financial professionals. The information contained in this post is based on our personal opinions and your financial decisions should not be based on our advice.
Ever found yourself spending more than you earn? I know I have! After failing to keep track of finances in my head (multiple times), I figured out I needed to build a monthly budget.
And if you wanna take control of your finances, you need to start a budget too.
The practice of building (and following!) a budget can feel overwhelming at the beginning but don’t panic! Follow the steps below, and we’ll make it easy so you’re ready to start budgeting in no time.
How to Build a Monthly Budget
1. Make Time to Budget
If you’re stressed about money, you might be tempted to write up a quick budget just to get it done. But, even when getting a budget under control is urgent, you still need to make time to do it right.
I like to pick a time when I can focus on my budget for at least an hour. Knowing that I have enough time to get most, if not all, of the work done, helps me feel much calmer.
When I set myself up for a less stressful experience it’s easier to focus. I’m also less likely to miss an important step or say I spend less on clothes than I actually do.
2. Set Up a Budgeting Framework
Before you do anything else, open up an excel spreadsheet and make a budgeting outline. You can print it out later if you need something tangible, but I promise this will be easier than pen and paper.
I like to use an excel sheet because it’s easy to assign costs and manipulate data. And this functionality is key in setting a budgeting framework.
Luckily, we’ve set up a great budget spreadsheet that you can access for free by clicking here, so the work is done for you.
But, if you’d like to tough it out and make your very own budget outline, take a look at the following two options for monthly and bi-weekly budget frameworks.
Monthly Budget Option
Before you start creating your budget outline, you need to consider the length your budget cycle should be — monthly or bi-weekly are the two I recommend. Bi-weekly budgets are good if money is really tight, but for many people a monthly budget is sufficient.
Using a monthly budget means the costs assigned to each category in my budget equal the total monthly cost for that area. I.e., how much groceries cost for one month, the total cost of my bi-monthly mortgage payments, etc.
I like this method because I like to see the total monthly picture in one place. It helps me understand my exact monthly expenses at a glance. For example, a monthly budget outline might look like this to begin with:
Bi-Weekly Budget Option
If money is really tight, or if you just suck at budgeting, consider setting up two bi-weekly budgeting outlines, instead of one monthly budget. Using a bi-weekly budget means that you make a budget for each period between paychecks, usually, that’s 2 weeks.
For example, if you get paid on the 1st of December and the 15th of December, make a budget that will go from December 1st-15th (budget part 1), and a budget that will go from December 16th-31st (budget part 2). Like our example below.
Making two bi-weekly budgets can help turn something big and overwhelming into smaller bite-sized pieces that are easier to manage.
Once you’ve decided what budget cycle works for you, it’s time to start filling in your budget framework.
3. Write Down Fixed Expenses
Your next step should be figuring out what your fixed expenses are. A fixed expense is a set cost that doesn’t change from month to month. I.e, mortgage, insurance, car payment.
Fixed expenses are pretty straightforward to calculate – the same amount will be billed to you each month. So, reference your online banking or service account statements to find your costs.
Go through and write down every fixed expense in the estimated expenses column of your monthly budget framework.
After writing the name of each expense, list the cost for that item. If you’re feeling stuck thinking of fixed expenses, check out the list below to see what you should be looking for:
- Fixed Household Expenses
- Property Taxes
- Home insurance
- Health insurance
- Mortgage insurance
- Life insurance
- Disability insurance
- Vehicle Insurance
- Other Fixed Expenses
- Bank Fees
- Car Payment
After writing out fixed expenses, your monthly budget might look like this:
Dealing with Annual Fixed Expenses
As you’re figuring out fixed expenses, make sure to account for any costs that are billed to you annually. This could be anything from property tax to credit card renewal fees.
For things like property tax, there may be city-funded programs available to you that will break the bill out and charge you on a monthly basis.
But, if you prefer to pay annually, or there isn’t an option to be billed monthly, you will need to set up a savings account for your annual bills and deposit money to the account monthly.
Bi-Weekly Budget Fixed Expenses
If you’re using 2 bi-weekly budgets, make sure to write down the dates that your bills are due so you can account for them in the appropriate section of your outline.
For example, bills that are due between December 1st-15th would be written in part 1 of your
bi-weekly budget outlines. Bills due between December 16th-31st would be written on part 2.
Remember, when using a bi-weekly budget, you can’t assume if your monthly expenses are $2000 that part 1 will be assigned $1000 and part 2 will be assigned $1000. Money will be assigned to parts 1 and 2 based on your billing cycles.
If you’re using 2 bi-weekly budgets they should look like this right now:
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4. Write Down Variable Expenses
The next step is to calculate your variable expenses and write them down in your budget outline. A variable expense is a monthly cost you’ll have to pay, but the total amount may change or can be decided by you. I.e, groceries, utilities, entertainment.
To determine variable expenses, review your spending for the past 2-3 months to figure out how much you should budget for each category. You can use bank and credit card statements to figure these expenses out if you rarely do cash. Then record variable costs in the estimated expenses column of your budgeting framework.
For those who spend mostly cash and don’t keep receipts, you might have to suck it up and start tracking for a couple of weeks.
If you’re having trouble dividing your variable expenses into categories, here are some suggestions:
- Variable Household Expenses
- Household supplies
- Household repairs
- Utilities (see section 5 to learn about calculating utilities)
- Vehicle Expenses
- Car Maintenance
- Eating Out
- Kid’s Expenses
- Pet Expenses
- Personal Care Expenses
- Fun Spending
- Other Spending
- Birthday gifts
- Charitable Donations
Once you’ve plugged in your variable expenses, this part of your monthly budget should look like the following example:
*Note: You want to make sure your variable expense numbers are as close to what you’re actually spending as possible. Later on, this will help you understand which areas you need to make changes in.
Bi-Weekly Budget Variable Expenses
If you’re using a bi-weekly budget, go ahead and calculate your monthly variable spending for each category, divide the number in half, and plug the final figure into your two bi-weekly budget outlines.
For example, if you spend $600 on groceries every month, you’ll write $300 on both bi-weekly budgets in the grocery category.
For expenses like utilities, follow the directions below to find the average cost, make note of the day that your utilities are due, and record the cost in the correct part of your budget outline.
This section of your 2 bi-weekly budgets will look like this:
Figuring Out Utilities
Some variable expenses, like utilities, require a bit more number magic, because it’s hard to control and predict what your bills will be. This is how I handle utilities (and you can apply the concept to other bills in a similar situation):
a) Review my monthly costs for the past 12 Show an example of writing down your costs for the past 12 months
b) Calculate the average cost and use this number as the amount I budget each month for Show how to average your costs for the past 12 months
c) Carry over any excess money budgeted to this category to help with next month’s expenses.
*Note: Consider what time of year you’re creating this budget. For example, your winter utilities may be higher than your summer ones; make sure to plan for that.
5. Make Savings and Debt Repayment Goals
Another very important part of your budget is savings and debt repayment. If you really want to get ahead, you’ll need to make some goals to create savings and to pay down any money you owe.
Some specific categories that you might want to plan for are:
- Retirement savings
- Travel savings
- Emergency Savings
- Funds for annual bills
- Debt Repayment
- Credit cards
- Line of Credit
Even if you can’t afford to put very much money toward savings and debt, you should make a habit of putting a small amount toward these goals. Especially retirement savings — if you haven’t started saving for this, get on it now.
If you’re wondering where to start, in terms of debt, research has shown that you should by pay off your smallest loan first (as long as interest rates on your loans aren’t super different). Paying off the littlest loan first has been proven to help motivate you to pay off your debt.
As for savings, it’s a good idea to work toward having an emergency fund that equals 3-6 months of your living expenses. I know that sounds overwhelming, but don’t panic! You can work towards this over a number of years. You just need to make a specific weekly or monthly goal that you will be accountable for. For example, you may decide that you’ll put away $50 a week.
Once you’ve decided on your savings and debt repayment goals, be sure to write your numbers down in the estimated expenses column. At this point, the savings and debt portion of your budget should look like this if you’re using a monthly outline:
Bi-Weekly Budget Savings and Debt
If you’re using two bi-weekly budget outlines, decide the dates on which you want to put money towards savings and debt (if it’s up to you). Then, write the savings and debt-repayment transactions on the correct part of your 2 bi-weekly budgets. The savings/debt part of your budget should look like this:
6. Write Down Your Income
After filling in all of your expenses, turn your focus to the earnings section.
I like to list every income source for my family (my full-time job, my husband’s part-time job, etc.) and then I fill in how much money comes from each. It works best for me to write out after-tax totals so I know how much I actually have to spend. And, it’s easy to do by reviewing paystubs.
After adding your income to the estimated income column in your monthly budget outline, it should look something like this:
Bi-Weekly Budget Income
If you’re using the bi-weekly budget, you’ll list income that occurs in the first half of the month on part 1 of your outline, and all the income that occurs in the second half of the month on part 2 of your outline. Your 2 bi-weekly budgets should look something like the following:
Tips for Irregular Income
If your income is unpredictable, you should include a section for reliable income (income you KNOW you’ll have) and a section for other income (income you can’t always rely on). See the examples below if you’re wondering what that would look like:
Figure out how much income you can count on each month and budget for that amount. If your income is very low some months, you may need to save during the months you earn more money and live on savings during the slow months. Brainstorm what will work best for you–you’ve got this!
7. Calculate the Difference Between Your Spending and Earning
One super important final step is to figure out the difference between your spending and earning. First, add up everything in the estimated expenses column of your budget and write the number down.
Next, add up everything in your estimated income column of the budget and record the number. Now subtract your complete estimated expenses from your estimated income.
If the answer comes out as a positive number, that’s great; you have extra money! If the number comes back negative, you are spending more than you earn and you need to make some changes. Below we’ll talk about how to fix your budget if you’re spending more than you’re earning, and what to do if you have extra money in your budget.
8. Revise Your Budget
Your next step is to revise your budget (because I’m guessing you don’t magically spend the exact same amount that you earn). For most, revising will mean making some sacrifices.
Make Cuts to Your Budget
If you spend more than you earn, one solution is to make some cuts to your budget. To do this, first look at areas of the budget that you can control. Some areas you may be able to reduce spending in are:
You can cut your grocery bill down by meal planning, couponing, shopping sales, batch cooking, reducing meat intake, and eating more beans and rice. Make sure you always have a plan for what you’ll eat the next day and have groceries available so you don’t impulse spend.
b) Eating out
Stop eating out or reduce how often you eat out. Start meal planning and always be prepared to eat at home so you won’t be tempted to go to a restaurant
c) Fun Spending
Cut out or reduce your fun spending. Brainstorm cheap ways to have fun and stay home more often. If you invite friends over, ask them to bring potluck food or snacks.
Ride your bike to work. Carpool. Stay close to home.
Shop around for a better deal on your utilities and switch providers. Call your current utilities provider and negotiate a better deal for services. Conserve electricity by turning off lights. Keep your furnace off and wear a sweater.
While you’re making your new spending goals, remember to be realistic. Yeah, you can probably get your entertainment money down from $350/month to $100/month. But, it’s unrealistic for you to go from spending $300/month on groceries to $30/month on groceries.
Find a Way to Make More Money
If you finish the previous exercise and you STILL find you don’t have enough money to cover expenses, you’ll need to find a way to make more money. A few ways to make more money are:
a) Ask for a Raise:
Do some research, gather your courage, and ask your boss for a raise. If you do it professionally, the worst thing that’ll happen is you’ll be turned down.
b) Get a Side Hustle:
Start a side hustle. You might try: freelance writing, virtual assisting, web design, housecleaning, photography, babysitting/childcare, or a newspaper route.
c) Host an Exchange Student:
Many schools and universities work with exchange student programs that will pay you to host a student. Get in touch with local schools to learn about your options.
9. Make Goals for Extra Money
While many people reading this post won’t struggle with extra money at first (especially if you needed step 9), it’s important to have a plan for leftover money when it happens.
A good budget won’t leave any money unassigned, and whether you have $10 or $200 left over in your budget, you need to decide what to do with it. So look at your savings goals and debt repayment and put that money somewhere useful.
10. Develop Your Stick-To-It Strategy
Figuring out how to stick to your budget is an all-important step in being a successful budgeter. Here’s how you’re going to do it:
a) Choose a day and time when you will go over your budget each week
b) If you’re really bad at budgeting, choose a time every day to go over your budget
c) Make yourself accountable to a close friend or family member
d) Try different methods of tracking your budget until you find your best fit
e) Have a backup plan for when you go off budget (because this will happen)
Build Your Monthly Budget Today
If you want to take control of your money situation, you need to build a monthly budget today. Believe me, I know it can feel overwhelming to start budgeting, but you can do it, even if you’ve failed before.
Just work through these steps for building budget. Soon you’ll be saving money, getting out of debt, and feeling more at peace with your money. You have nothing to lose, so get started today!