How to Make a Monthly Budget: The Simplest Budgeting Method
Learn how to make a monthly budget to have full control of your finances!
I’m still torn between #YOLO and being a planner. I’ve always been a “yolo-er” my whole entire life and still truly believes that it’s important to try things now while your young and able. But, I’ve recognized the fact that I am not Kim K. and I wouldn’t be able to afford all the things I want to do today while still sustaining the future of my three kids. I have to balance things out by making sure I enjoy the moment and experience life to the fullest while I set money aside for bigger things like travel and important things like investments.
“If you live like no one else, later you can live like no one else”–Dave Ramsey
Venturing into Dave Ramsey’s book, The Total Money Makeover, made me realize the importance of planning for the future. The book preaches 7 baby steps:
Baby Step 1: Save 1000
Baby Step 2: Pay off debt
Baby Step 3: 3-6 month fund
Baby Step 4: Invest
Baby Step 5: College
Baby Step 6: Pay off house
Baby Step 7: Give
When followed, would let you live like no one else down the road. While everyone else is maxing out their plastics and “living” the life, we are tightening our belts for now in preparation for a debt-free and enjoyable life in the future.
The principle is to spend actual cash when buying things and not make any loans when purchasing. A lot of testimonials from people who have even up to six-figure debt have proclaimed to be debt-free using Dave Ramsey’s system. People in their 30’s claiming that they have paid off their homes and have multiple investments.
How to be successful in completing Dave Ramsey’s program?
The fundamental item that needs to be mastered in order to complete the baby steps is to budget your finances.
How to Make a Monthly Budget
Lay Out Your Starting Point
Establish your strong why or REASON why you want to budget.
- A typical and strong enough motivation is family. Saving for your loved ones should be more than enough to improve your spending habits.
- Gather all of your debts or loans and write it down. I know, this is daunting and scary. But you need to see the reality and what damage this has done to you.
Write out all your spending on how you would normally do for a day. No control, just how you usually do it. This will be an eye-opener as you see how little things can add up. It will make you realize how much money are spent mindlessly on things that are not really necessities.
Determine Your Total Income
Add up any income from your regular job, side hustles, bonuses, etc. Make sure you use the net income–the actual money you have after any deductions like taxes or retirement.
Categorize Your Expenses
1. Fixed spending recurring monthly – necessities that you must pay and you can’t live without with a fixed cost. i.e. mortgage, utilities, car
Note: Include savings as part of your budgeting under “expenses.” This means that savings MUST BE SET ASIDE whenever possible.
2. Variable spending recurring monthly – necessities that you must pay and you can’t live without with amount that changes monthly. i.e. groceries, gas
Make room for these things and be a little conservative when budgeting an amount for it since the amount is not fixed. You can adjust your budgeting here once you see what you can lessen more of.
3. Miscellaneous – Things you usually spend on but are not necessities. You can live without them. i.e. eating out, cable, extracurricular activities
Like variable spending from #2, you can also tweak the amounts here so you can allocate more money where you need most. Since most miscellaneous are not a must, you can eliminate some of them if you need to tighten up for the month.
You can lessen eating out by prepping your meals at home. you can cut down on cable since mostly everyone has a mobile device to watch on. Things that are usually luxuries than necessities can be avoided for the sake of saving.
Track Your Spending
Track your spending monthly by jotting them down. After this exercise, you will gain a bigger picture of where your money really goes.
This is where you gain insight on where to slash things off. Make adjustments when necessary and don’t be afraid to see the “real” amount you spend. It can be daunting to see these numbers on paper (or app), but in order to fix your finances, you have to face it!
Income – Total Expenses = 0
At the end of the month, subtract all you’re expenses from your net income. Your end result should be 0. Aim not to go negative! If you can’t achieve this, look for things you can eliminate or adjust to meet your monthly income.
Now that you know the fundamentals of budgeting
- Set goals. Have a goal in mind, both short and long terms. Short term can be a year and long terms are 5-10 years. By having goals, you give your life sense of direction. You know how much your saving for and the reason you’re saving,
- Plan Ahead. After seeing your spending habits from previous months, you can plan where your money goes and allot specific amounts on certain categories. Plan on cutting down things that are not necessary so you can devote certain amounts on things that really matter.
- Check in. Do a monthly check-in on your savings, loans, and expenses just to see if you’re on track towards your goal. This will help you get motivated when you see those debts decreasing and savings increasing.
Lessons Learned on Budgeting
As I go through this debt-free journey with Dave Ramsey, I have learned so much along the way. It’s not so much about learning something new or ground breaking. They’re all common money saving things that I just never could relate to or, as bad as it sounds, never cared for.
But I finally came to my senses and started to
- Control my shopping urges. I still love fashion, decorating my house, and new gadgets. But I no longer succumb to impulsive buying. Which means I no longer…
- Buy things I don’t really need. Necessities now come first more than anything, especially my family’s needs. We are now able to enroll the kids to all their extracurricular activities and travel more.
- Have more awareness. I now view money as an important tool that needs to be spent wisely. There is no plastic fair that spits out unlimited spending amounts. It’s an actual tool used to obtain an item that is fully yours and not loaned.
And the most important part,
4. Have control over our money. Money no longer controls me.
Budgeting might be common sense to most adults out there. But to some of us adults who grew up not being exposed to these things, it does not come naturally.
Get your independence, feel secure that while you are enjoying your life right now you are also set for the future.
How to Make a Monthly Budget is part 18 of the Perfecting Habits Series where you can join me in incorporating some habits that definitely changed the course and my outlook in life. Get your FREE Habit Tracker today, plus BONUS morning habits worksheets that you can use to help you build a life you enjoy!