Creating a Monthly Budget: Personal Finance Tips for Success

So, what exactly is budgeting? In one justifies, a budget is a record of the spending choices you hope to make. It projects how many more months into the future new money will come in and it tries to budget the amount sufficient to cover food, housing, transport, insurance and so the minimum cost of living that needs to be satisfied without any luxuries. For most people, good cash flow management is very much about protecting the downside. In practical terms however, self-discipline is extremely hard to do for most people as nearly everybody will have the intention of overspending. With self-discipline, a budget is then split between the targets and the actions while the budget will then give out a map towards achieving financial goals. This does, however, ensure that making major purchases at the wrong time such as when someone is planning a holiday.

Is it then any surprise that the number of Americans looking towards the aspect of budgeting has been on the increase in their drive for outstanding financial conditions? Even if a budget cannot provide love as famously quoted by The Beatles, it may well be a useful attempt to relieve a significant tension point experienced in many relationships: conflict over money.

Why Is It Important to Budget

USA experienced economic growth during 2018 as it entered its longest expansion phase. However, a study conducted by Bankrate in the same year showed that nearly two thirds of Americans were watching their wallets every month. And as we are witnessing a sea change in economic conditions, that number is only set to rise even further.

Economically stagnant wages, increasing burden due to debts as well as increasing costs for housing and healthcare have made so many Americans, this time around, look to curb their spending appetites even when the and GDP and employed figures look positive. But as you cannot lose weight while not having an idea of how much you are eating, you also cannot cut down on your expenditures and get your finances in shape without knowing what you are currently spending the money on.

Here are only a fraction of the reasons why a household budget is necessary in any financial situation: How to avoid or control debt: The reason why millions of Americans have high interest payments on credit cards is that they cannot afford to pay off their cards. This is because they simply make more purchases than their income allows. The most important budgeting is: Don’t spend more than your disposable income in a month.

A budget helps accomplish both short and long term goals is being able to say that I want to make a concerted effort to put aside money to buy a car next year or to buy a house in about five years, or perhaps I want to accumulate a sufficient retirement reserve that will allow me to enjoy my later years in peace. A budget indicates the needed reserves per month and the proper distribution of the given reserves. A budget is a way to ask you to make cutbacks: getting less lattes at Starbucks, eating fewer restaurant meals, enjoying more affordable holidays, downgrading on cable package and extending the use of an older car model. A budge also helps you prepare and set aside cash for upcoming purchases such as utility bills or car expenses.

Their attitude makes you feel in control of your money: Put simply, budgeting is a process that provides individuals with the sense of responsibility and self-control necessary to use their finances more effectively. Numerous studies have shown that people who stick to their budget have better chances of success in achieving their financial goals, in part because they get emotionally involved in the process.

Steps in the Monthly Budgeting Process

There is no one-size-fits-all tool or method for budgeting. Different people with different abilities are likely to settle on different methods and approaches to budgeting, some may prefer the budgeting application such as Mint, some may prefer programs such as Quicken, some may like a desktop budgeting interface like the one given by in Charge Debt Solutions, while others may choose the old fashioned approach of writing down all budgetary items using a pencil. The hopeless with numbers can always use in Charge’s budgeting calculator. However, Being able to find an appropriate way to budget a person’s financial resources is not enough. There are certain steps that are compulsory so that a person continues to have a holistic view of his or her finances.

Collecting Financial Records: This is simply a task of trying to gather every record that could give an account of the amount of money received and the expenditures within a period of a month, such records include bank and credit card and investment account statements, pay pedigrees and benefits statements and electronic transactions. A budget, therefore, hinges on its fact of its precision. Go through three months of credit/debit cards statements to be sure you have enough spending categories to cover your expenses.

Although there are recurring expenses and income factors with a possibility of one-time transactions, it remains best practise to prepare a paper trail of cash movements in order to determine the amount of cash inflows and outflows into and out of the family on a monthly basis. It is now time to reach the stage of detailing the budget that has been aimed at safeguarding the home in the long run.

How To Determine Average Earning During The Month

On budget, there are others’ take home incomes that do not necessarily count. Put them behind you, those earnings that are sought to provide tax credit. Take home pay is the residual income that is available for use or investment after paying any employer contributions for security plans.

When it comes to income, it should be noted that social security and other sources such as disability pension support, child support, regular interest/ or dividend income, and alimony should be considered too. All these domestic sources of consistent cash inflows to families would most appropriately be classified as income in the family monthly budget. It provides the procedure of how gross monthly earnings of employees are computed.

In The Case Of Bi-Weekly Pays: For those who have bi-weekly pays, ‘check’ refers to one paycheck and hence the total amount after the take home pay for one check is multiplied by the number of checks paid in a year, this comes to be 26. Then the figure comes when the explain number twelve is utilized in dividing the answer in order to come up with an average for the month. In The Case Of Weekly Payroll: In the case of those who are on a weekly payroll, that amount multiplied times 52, which is the total number of weeks in one year, gives a rough estimation of the annual income and this is later divided by twelve months in order to get the average monthly income.

In The Case Of Tips, On-Call Hours And/Or Commissions: If your case is not of a fixed income like this of tips on-call hours and/or commissions, you may also be able to get average monthly earnings by calculating monthly earnings over a time span of 3 months and then dividing it by 3.

Prepare A Comprehensive List Of All Your Monthly Expenses

The moment you have received all relevant documents or collected any acceptable financial statement, you are now ready and in a position to confidently compute the average monthly outlay which in this case involves determining or having average monthly outlays ranging from mortgages, rent and outlays on vehicle loans, utility bills, insurance, prescription, food and outlays on entertainment and on student and other loans. Also make sure that you include irregular bills which in this case refer to payments made on regardless of when the couragement comes such as tax on property, car registration and insurance fees paid on the vehicle.

To avoid overspending, it is necessary to monitor how much is spent on a particular item or service. In making this easier for consumers, the Consumer Financial Protection Bureau has a useful budgeting tool known as the spending tracker worksheet.

Categorize Expenses as Fixed or Variable: To determine how much wiggle room you will have to adjust your budget to meet specific goals, you first need to figure out which expenses are fixed and which are variable.

Fixed expenses are those payments that remain relatively consistent from month to month. They often reflect “needs” rather than “wants,” though some categories fall into gray areas. The more of your overall budget that is consumed by fixed costs, the less flexibility you will have to make adjustments absent some big lifestyle changes (such as selling your car, taking on a roommate or moving to a city with a lower cost of living).

Examples of fixed expenses:

• Mortgage/rent
• Car payments
• Car insurance
• Health insurance
• Utility bills
• Internet, TV and cell phone service

Variable expenses, on the other hand, differ significantly from month to month based on your lifestyle, choices and spending habits. They are typically classified as the “wants” in your life and therefore can be adjusted more easily and reallocated in your budget depending on your individual goals —  whether it’s to pay down debt, save for a big-ticket purchase or build up a rainy day fund.

Examples of variable expenses: 

• Travel
• Dining
• Gifts
• Entertainment

Add Up Income(s) and Expenses Columns

Now that you’ve documented all your expenses and income, it’s time to add up each column and face the music:  If your income exceeds your expenses, you might want to whistle the Kingston Trio’s “Put Your Money Away” as you decide how best to deploy that excess cash. If, on the other hand, your expenses outstrip your income, it’s time for a more sobering tune like Destiny Child’s “Bills, Bills, Bills” or Lou Reed’s “The Debt I Owe” and some hard choices. Budgeted expenses should never exceed 90% of your take-home income. But don’t let that sad song get you too down. By adding up your income and expenses, and seeing where the difference lies, you’ve taken the most important step yet to creating a budget that will allow you one day to sing “Happy Days Are Here Again.”

It’s also important to make sure your budget tracks due dates for bills so that you don’t risk missing payments and racking up late charges or other penalties, which will quickly throw your budget out of whack. Consider setting up automatic payments for recurring bills and/or  incorporating a bill calendar into your budget to keep tabs on due dates and ensure that your income flow is sufficient to cover individual payments each month; the Consumer Financial Protection Bureau provides a sample here.

According to a survey by the National Foundation for Credit Counseling, 59% of adults do not have a budget. This lack of planning often leads to financial stress and missed opportunities.

Steps to Creating an Effective Monthly Budget

Understanding the sources of your income: The budgets creation process begins with knowledge of the total income you expect to receive every month. Write down your salary, freelancing, and other forms of residual earnings. If you do not have constant earnings account them by taking average income over a number of months.

Tip: Use net income (after taxes and deductions) to avoid overestimating your spending power.

• Fixed expenses: Rent, mortgage, insurance.
• Variable expenses: Groceries, utilities, transportation.
• Discretionary expenses: Dining out, subscriptions, entertainment. Use tools like budgeting apps or spreadsheets to monitor your spending.

• Paying off credit card debt.
• Saving for a vacation or home down payment.
• Building an emergency fund.

The 50/30/20 Budgeting Rule

One popular method for budgeting is the 50/30/20 rule:

• 50%: Needs (rent, groceries, utilities).
• 30%: Wants (entertainment, dining out).
• 20%: Savings and debt repayment.