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Crafting your own monthly budget isn’t all that complicated, but it can be tedious and downright depressing when you’re first starting out. After all, creating a spending plan usually means cutting in areas you probably enjoy, such as dining out and entertainment. If you have a bunch of debt dragging you down as well, your monthly budget may need to feel restrictive for a while, too — at least until you get a handle on your most unruly bills.
Add in the fact that budgeting is an ongoing process, and it’s easy to see why so many people just don’t do it. Emily Guy Birken, co-author of the money management book “Stacked” says that, in that sense, budgeting is a little like doing your laundry. “It’s not a once-and-done job, and there’s no shortcut to having to deal with it regularly,” she says.
With that in mind, the key to successful budgeting is making it enjoyable and routine. Birken says you should ask yourself some important questions before you start. For example, will you have more fun with weekly money check-ins if you take your laptop to a coffee shop? Can you make tracking expenses into a game? Finally, how can apps and programs help smooth over the stuff you don’t like doing?
The more you can do to ease the burden of budgeting, the more likely your spending plan will stick. So as you prepare to plan your financial life one month at a time, here are six steps to help you build a budget that works.
First off, you’ll need to know where your money has been going. This usually involves breaking out your bank statements and credit card bills from at least the last six months, and looking over them to add up how much you’re spending on both essential and non-essential purchases.
For example, looking at your past month’s statements may make you realize you’re spending way too much at the grocery store, or that your Amazon spending is out of control. Maybe you find your hobbies are eating up a big chunk of your income, or that a large percentage of your discretionary funds is going to dining out.
Armed with this information, you can move on to the next step of the process.
Step 2: Write down all your monthly expenses and bills
On a piece of paper, take the time to write out each of your required expenses and bills that come up each month. This includes fixed expenses like your rent or mortgage, insurance premiums and your car payment, for instance. However, you’ll also want to estimate the costs for any variable expenses you have, such as groceries, utility bills and gas for your car.
Also, remember to list out any debts you have and their monthly payments. For example, list the minimum payments on credit cards, personal loans and more. Once you have an idea of how your regular, required expenses look, you’ll know what you’re working with.
Next up, you’ll want to write down a general estimate of how much you earn in any given month. Obviously, this step becomes easier if you’re paid a salary or an hourly rate for a fixed number of hours.
If you have a variable income, get out your last 12 months of pay stubs to come up with an estimated income for each month and use that as your income basis.
With your required monthly bills and expenses in one column and your income in another, you can begin crafting a spending plan that fixes problems and money leaks you found when you tracked your spending from previous months. For example, you can divert discretionary spending on dining out toward paying down your debts faster, or you can decide to push that money into a savings or retirement account instead.
Ideally, you’ll write out a new budget that uses your income to cover each of the fixed expenses you have while helping you work toward your goals. This applies whether you want to save more of your income for the future, or if you want to focus on paying off debt. Or perhaps you want to build up your emergency funds just in case. Maybe you want to do a little of each. Either way, your new budget should accommodate whatever you hope to accomplish.
From here, you can also decide how you want to spend money going forward, like whether you want to continue paying for bills with credit or debit cards or whether you prefer to switch to the cash envelope system in an effort to avoid cards altogether.
Step 5: Be ready to tweak and revise
With a new monthly spending plan written out, you’ll want to go through the next month keeping an eye on all the various numbers. If you feel like it, you can even mark items off your budget as they’re paid. You should also track spending in variable categories like groceries, gas and dining out as the month goes on.
In the meantime, you should plan to make mistakes! Birken says it’s easy to see getting off track as evidence of something negative, but it’s nothing of the sort. Not only that, but consistently getting back to your good habits has a bigger impact on your financial health than an occasional slip-up.
As you work on improving your budgeting strategy over time, just remember there is no such thing as perfect in any human endeavor. “You’re aiming for progress, not perfection,” she says.
As time goes on, it’s only natural for some aspects of your budget to change. After all, you may lose expenses altogether as you pay off your debts, and you may run into unexpected windfalls that can help you get further ahead. Of course, the opposite is also true, and you may find yourself earning less in future years.
Regardless, Birken says the important thing is to remember that your timelines for your goals can change, and that they probably will. “Leave room in your plans for flexibility, for changing your mind and for adjusting your expectations,” she says.
Whatever you do, take the time to write out a monthly spending plan every month, and stick to it as closely as you can. You’ll have good months and bad months along the way, but follow your plan as best you can, then rinse and repeat.
Making a budget isn’t rocket science, but it’s one of those tasks that’s far too easy to put off. If you feel overwhelmed by the mere idea of creating a spending plan, make sure to look out for free budgeting tools that can help you stay on track while monitoring your discretionary spending and fixed expenses. Maybe you can find a budget spreadsheet or budget tracker you love, or maybe you can make a personalized budget template that makes sense for the way you think.
If you need help, it never hurts to reach out to a fee-only financial advisor, either. After all, financial advisors can help plan your investments, but they can also help you figure out your goals. Sometimes knowing what you want out of life can serve as the impetus for budgeting the money you work so hard to earn.
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