How to Create a Super Simple Monthly Budget
how to create a super simple monthly budget
First off, Way to go! If you’re reading this, that probably means you have decided to take a step forward in managing your money better.
When you hear the term budget, what do you think of? Do words like complicated and hassle come to your mind, or words like freedom and achievement? While budgeting can sometimes seem like an annoyance, budgeting is actually one of the most crucial steps to managing your money. It will bring you greater financial awareness and financial freedom. And truth is, it’s actually pretty easy.
- A recent poll found that only 32% of Americans maintain a household budget.
- This could also explain why half of American households are currently living paycheck to paycheck.
- 65% of women and 52% of men said that financial matters cause them the most stress
- 44% of Americans don’t have enough cash to cover a $400 emergency
So obviously, we have some work to do. If you’ve done any research at all about saving some extra cash, you probably know that budgeting is always first on the list.
SO What is Budgeting?
Budgeting is simply a term that describes the balancing of your income and expenses, and creating a plan to spend your money. Although I wish I could just flat out tell you how much to spend and where to spend it, these numbers are going to be so completely different based on your situation- your income, expenses, family obligations, etc.
There are lots of ways to budget- I even know someone who cashes out their paychecks and puts the money in envelopes labeled with the spending category. When the “eating out” envelope runs out, she’s done eating out for the month.
The goal of keeping a budget is to make sure that your income is greater than your expenses. This will allow you to save money for college, a downpayment on a house, emergencies, and other things.
As you read about budgeting, there may be some terms your unfamiliar with- the 4 types of expenses. I’ll give you a quick definition so that they make more sense.
Expenses that vary month to month. Things like utilities and gas. One month you might spend $70 on gas, but the next month you decided to take a road trip and that jumps up to $250.
These expenses are fixed, meaning they remain the same month to month. This includes your rent, your phone bill, and your car payment.
These are expenses that occur periodically throughout the year- things like tuition or oil changes.
These are non-essential and include expenses like eating out and getting your nails done.
why you shouldn 't follow the 50-30-20 Rule
If you do some research about budgeting, you are sure to come across the 50-30-20 rule. This is the budgeting rule that a lot of people swear by, but I’m not really a fan. Here’s why- It kind of works under the assumption that one size fits all.
The 50-30-20 rule states that you should spend 50% of your income on essentials like insurance, car payments, mortgage/rent, and more. 30% is spent on discretionary expenses like eating out and buying new clothes, and then 20% goes to savings. While I think this could work in some situations, I also don’t think one size fits all when it comes to finances. Let’s look at some examples.
Sally and Jim: Sally is a personal trainer and Jim is a financial advisor. They don’t have any kids and live in a small one bedroom apartment. I mean, that’s all they feel like they need. Since they are both in career-type jobs, they make $7,500 a month together (lucky). If they lived the 50-30-20 rule this would be their budget:
- 3,250: Essentials
- 2,250: Discretionary Expenses
- 1,500: Savings
I don’t think I have to be the first to say that those numbers are just unnecessary. I don’t think I could spend $2,250 a month on shopping and eating out if I tried! Using the 50-30-20 rule would probably create unnecessary spending habits and limit the amount they could be saving.
Now a second example is Megan and John: Megan is a stay at home mom and John recently got a job in retail. Since they have a child, they are living in a two-bedroom apartment and have a lot of extra expenses- diapers, food, doctor visits, and more. John makes $2,700 a month. If they used the 50-30-20 rule this would be their budget:
- 1,350: Essentials
- 810: Discretionary Expenses
- 540: Savings
From Megan and John, maybe it’s more realistic that they cut back on discretionary expenses and use that for essentials.
Whatever your circumstance, I think it’s important to look at your own income and expenses, and think of a realistic breakdown that fits with your situation. The point is, figure out what works for you, whether that is the 50-30-20 rule or something else.
the best way to budget
While there are a lot of ways out there to budget, I’m going to focus on the basic old-school budgeting worksheet. I’m definitely an old-fashioned pen and paper kind of a person, so I love being able to see everything in front of me and magnet it to my fridge to see everyday when I’m making breakfast.
I love budgeting sheets because they are so personal, and give you an opportunity to really evaluate your unique situation and come up with a plan that works for you. A budgeting sheet gives you a place to list your income and expenses. It breaks down your expenses into an itemized list and identifies all of the possible ways you may be spending your money. Fill out the form below to download my budgeting worksheet!
Your job is just to fill it out with the most cost-efficient scenarios. What I mean by this, is don’t create your budget based on your spending habits, create it based on your needs. For example, if you are spending $200 a month on new clothes right now, don’t just write down that number right away. Take a minute to think about how much of that is actually necessary. After all, the whole point of creating this budget is to try and decrease your expenses and increase your savings. If you decide to write down $100, hold yourself to it.
I’ve seen people who have said that the goal is for your income minus your expenses to be 0. I don’t know if I agree with that, because that means living paycheck to paycheck… that sounds stressful. I think you should set your own savings goal based on your situation, but it should definitely be more than zero. You don’t wanna be part of that 44% of Americans who don’t have enough saved up for a $400 emergency. Once you come up with your savings goal, adjust the numbers in your budget to reflect that.
Let’s go back to the example of Sally and Jim- I think a better approach would be for them to look at their monthly income along with their monthly expenses and make a goal based on that.
Using my Monthly Budget Sheet, I created a realistic budget that might reflect Sally and Jim’s monthly income and expenses. After accounting all of their expenses, they can still put away $3,530 in their savings each month.
Now be sure to keep track of your spending. Creating a budget like this is pretty pointless if you don’t track your expenses to make sure you are staying in-line with it. A great way to do this is just in an excel spreadsheet. They have tons of templates created for this exact purpose. Just go to the excel templates and type in budget! Another great way is finance apps.
using a finance app
If you are a big fan of using apps, this is a seriously great option worth considering. There are tons of apps out there that will help you create and hold to a budget, but my all-time favorite is Mint.
After creating account, you will connect and sync Mint directly to your bank account(s). You will now create a budget within the app, kinda the same way that we did on the sheet above. It gives you a long list of categories and you can determine your budget for each one.
That’s it! After you create your budget, Mint will actually track all of your income and expenses for you and let you know if your under or over budget. It automates everything and makes budgeting so so simple. It will show you a chart each month of how much you spent and exactly where that money went. It makes your habits visual, and helps you better grasp how and where you can improve.
If you remember one thing from this post, let it be financial awareness. Budgeting is created to help you plan your finances, keep track of them, and adjust your spending accordingly. With more of a money-mindset, you are sure to get closer to your money goals.