How To Make Your Monthly Budget: The Ultimate Guide

You can’t start your financial journey and can’t achieve your financial goals without a budget. And that’s why you should make a budget. But, how to make your monthly budget, anyway?

*(You’ll get the answer in a minute, so stick around to find out more).

First, you should understand that a budget gives you a clear picture of your spending. So, are you spending more than you’re earning?

If that’s the case, then you, my friend, are going into debt each month. And that will only lead you to drown in debt in the worst possible ways.

At first, it seems like the budget is getting restrictions for you or setting boundaries.

But it’s quite the opposite.

It helps you take control of your spending and adjust your lifestyle so you can live off of what you earn. And this also means not relying on loans from the bank or family and friends.

It may also seem like a budget is only for governments and businesses, but that’s not the case.

Individuals and families also need to budget their money. In other words, we all need to learn budgeting.

Plus, a budget is a tool, with which you can achieve your financial goals.

Truth be told – I’m only regretting that I didn’t find out about it sooner.

So, what is a budget?

A budget is a spending plan in a written form. And with a well-structured budget, you can even achieve financial freedom.

Remember, no one can make a budget right from their first try (including me and you). But it doesn’t mean to give up budgeting right away. 

So, stick around and learn how to make your monthly budget.

Where To Write Your Monthly Budget?

As I mentioned above, a budget is a spending plan in written form. Where you will write it, it’s up to you.

When you figure out how to make your monthly budget, it’s also vital to acknowledge where you’ll write it. You can’t know it by heart, isn’t it right?

You can go old school and jot it down on paper with a pen. This method can be simple and satisfying for those who enjoy the tactile experience of writing.

Or, you can embrace technology and use Google Sheets or an Excel spreadsheet, as these digital tools allow for easy calculations, organization, and customization.

To find the best option for you, why not try both methods? Experimenting will help you determine which format suits your needs and preferences.

I personally enjoy the old-school approach because I can actually see and engage with my budget. It’s more visually appealing and allows for a hands-on experience, which I find helpful in managing my finances.

Remember to create a new budget for each month, as, each month brings unique financial circumstances.

Once you’ve decided where to write your budget, it’s time to start filling in the blanks.

But, how to make a monthly cash budget? Where do you start?

Start with your monthly income and read below how to do it.

1. Determine Your Monthly Income

Developing a monthly budget starts with understanding your income sources. It is the first step when figuring out how to make your monthly budget.

Begin by writing down your take-home pay, aka your regular paycheck from your full-time job.

Next, include any additional sources of income. It can be anything from part-time and remote jobs, to side hustles, to freelance businesses to side gigs, etc.

Add up all these income streams, and you’ll have a clear picture of your total earnings.

And this will ensure that you have an accurate baseline of your earnings to work with. Also, it sets the baseline for your budget and helps you know exactly how much you have to work with each month. It means the amount of money you have available to work with each month.

Remember to be thorough and consider all sources of income to avoid any surprises in your budgeting process.

No multiple income streams? No problem. Jot down what you earn each month (probably one income stream), and don’t hesitate to get creative and create more income streams.

Once you figure out all income streams, calculate it. Now you know your total monthly income.

For those of you with irregular income, there is also a way.

Find out your baseline income, which is also known as bare minimum income.

Because it’s about irregular income, it varies from month to month. And that’s why you should only include the essential expenses in your baseline income.

Keep reading below for more info about monthly expenses. 

2. Estimate Your Monthly Expenses

Your monthly expenses represent the budget categories in your budget. And once you determine your monthly income, the next thing to do is to allocate a certain amount of money towards your budget categories.

But first, here are five things to consider about your monthly expenses:

Below, each one is explained.  

#1 Name Your Expenses

Name your expenses into essential and non-essential expenses. Or necessary and non-necessary expenses. And how about mandatory and discretionary expenses?

If you’re a newbie to budgeting, don’t pick names such as fixed and variable expenses. It’s very confusing, and you will make your budget more chaotic than a clear and simple one. And you’ll give up before you even start.

For instance, water and electricity are variable expenses (your monthly bills will depend on how much electricity and water you use for the month). But your Internet and cell phone bills are fixed expenditures.

Your Internet and cell phone bills aren’t mandatory (or essential/necessary) for your survival, but water and electricity are (you cook meals at home, isn’t it right?).

For instance, you name your expenses into mandatory and discretionary expenses.

Mandatory expenses, as the name suggests, are expenses you need for your survival. That includes things you can’t live without, like food in your belly and a roof over your head.

Discretionary expenses include things you can live without, like eating out, going out, going on a holiday, etc.

These expenses have nothing to do with your survival. They are here to make your life brighter and more joyful and give you long-lasting memories.

#2 Categorize Your Expenses

Put all expenses into categories within your budget. As mentioned above, the budget categories represent your monthly expenses and are vital for clarity and simplicity.

Below is how you should start.

First, add the mandatory expenses, which have anything to do with your survival, and that’s why take care of it first before you spend money on anything else:

Next, the expenses below belong in discretionary expenditures and have nothing to do with your survival *(to make your budget clear, you can add them to the utility bills – if it works for you, great. If not, it’s up to you where you will put them in your budget):

If you have any debts, add them too:

Also, add your annual expenses. You know when these expenses will come, they cannot surprise you, so make sure you will not forget about them.

So, here are the most common annual expenses:

Next, add your other financial goals. (And I’ve said also consider your other financial goals because getting out of debt is also a financial goal):

Last, but not least, add a budget line called:

And now you know how to categorize your expenses. Categorizing your expenses will also help you on how to make your monthly budget. 

#3 Track Your Expenses

You determined your monthly income and expenses. Or a better way to say it: you put all the monthly expenses that apply to you into categories within your budget. And you also determined the amount of money for each budget category.

So, what’s next?

Well, do all you can to track your monthly expenses. You can’t change your spending habits in an instant. So, for this month, make an effort to track your expenses. And for the next, see if and where you can adjust it.

Also, don’t judge and don’t be harsh on yourself. Remember, you’re tracking your expenses now, so later, you can learn about your spending habits.

You should notice any spending patterns, and even does it varies a lot from month to month. And you can have a better picture, of how much money you spend monthly.

Just make sure you’re honest with yourself. That’s all that matters.

By tracking your monthly expenses, you have an insight into how much money you have for each budget category.

Also, you track your monthly expenses so, you can understand in which area of your budget you overspend or underspend. In most cases, it is overspending.

And if it’s overspending, first, review and analyze your expenses. Next, seek ways to reduce your expenditures so you can spend what you can realistically afford.

That way, you can have a better idea of where you overspend and do you have any outstanding debt. (Do you exceed your monthly income)?

One big takeaway: never, ever stop tracking your expenses. You should have it in written form. It will be easier if you have a notebook where you can write about every single purchase. Also, keep the receipts and bank statements, and you’ll never again forget an expense.

Another way to gain insight into your spending habits is by keeping the receipts and bank statements from the last few months. And if you don’t, thoroughly keep doing as above.  

#4 Analyze And Review Your Expenses

The best time to analyze your expenses is at the end of the month – before the next month begins – because then you’ll have more data to work with and a clear picture of your spending throughout the month.

So, when the month comes to a close, take some time to go over your budget and review your monthly expenses. Do you notice any spending patterns? In which areas of your budget do you overspend?

If you have never, ever kept a record of your spending, then likely you’re overspending. And this means you live above your means.

The goal is to learn to live below your means, which means to spend less of what you earn so you can meet ends and put aside money for your financial goals.

If you’re finding it hard to cover all your expenses each month, it may be a good idea to explore ways to boost your income. It could help ease financial strain and ensure you have enough money to meet your needs.

You definitely don’t want to be stuck with debts forever and end up with no savings or pension when you retire, do you?

And you definitely don’t want to be stuck paying off debts forever only to find yourself with no savings or pension when you retire, do you?

So, that’s why it’s super important to take a closer look at your expenses at the end of each month.

Take some time to analyze where you may be overspending. By doing this, you can start making smarter financial choices and ensure a more secure future for yourself. Pretty awesome, huh?

This practice can help you to make better financial decisions when you go out and spend money. It should also help you to reduce your expenses, which is the next thing to talk about.

Budgeting is not just a one-time task; it’s an ongoing process that requires attention and regular review.

In other words, budgeting is like steering a ship in constantly changing waters.

Remember, flexibility is essential. Life is unpredictable, and circumstances can change.

Unexpected expenses or income fluctuations may require modifications to your budget.

Whether it’s unexpected expenses or new financial goals, adjusting your budget can help you stay on top of your finances and ensure you’re always moving towards your desired financial future. 

#5 Reduce Your Expenses

After analyzing and reviewing your monthly expenses, it’s time to reduce them.

Put it this way: your expenses exceed your monthly income. Which means you’re overspending. Also, that means you borrow money to meet ends. Borrowed money equals debt that can get out of control.

Can you change that? How?

If you cut your expenses all at once, you may feel overwhelmed.

You may give up before you even start budgeting. And that will only lead to repeating the process mentioned above (overspending).

But here is a way of what you should do to break overspending. Gradually reduce your spending.

For instance, if you order take-out three times a week, then charge it twice a week, etc. You can continue by making a grocery list and sticking to it. Make it a rule: you will not enter your local discount market without a grocery list. It also means to cook more often at home. With meal planning, you can save money and eat healthier on a budget.

Then, move on to buying clothes only on sale or secondhand. Ultimately, it’s up to you.

But don’t stop there.

Before you get out of a room, turn off the lights. You can then continue with changing your regular light bulbs with LED light bulbs, which last longer and also save more energy.

And why stop with these examples? Get creative and find other ways to reduce your expenses.

That is how you free up money you can put towards your debt and your savings goals, aka your financial goals. 

3. Add Your Financial Goals

Having financial goals is fundamental, because it gives you a clearly expressed reason, why you should create a monthly budget. It helps you stay focused and motivated in managing your money wisely. So, what are your financial goals?

Whether you want to get out of debt, build an emergency fund, or save for a vacation, budget your money. Having a budget all by itself isn’t enough. You should also add your financial goals.

For instance, travelling and exploring the world is what you have wanted for a long time, but you still don’t have enough money to do it anyway.

And why did it turn out that way?

Well, it’s because you don’t know where all your money goes each month.

And again, why?

Also, once again, because you didn’t set up and follow a budget.

Put it this way: you should know your why, meaning you have a clear financial goal in front of you. And that will make following a budget uncomplicated.

So, why are you budgeting? Ask yourself why, not once or twice, but one hundred times if you need it.

Whatever your financial goals are, make it work for you. Set your financial goals in order of importance, and then add it to your budget. You owe it to yourself.

So, by adding your financial goals, you’ll figure out how to make your monthly budget.  

4. Pick A Budgeting Method

It makes little sense only to figure out how to make your monthly budget. You also need to pick a budgeting method too.

There are so many budgeting methods out there. Here are some of them: the cash envelope system (my favourite), the zero-based budget, the 80/20 budget, etc.

If you’re not sure which budgeting method to choose, do some research and pick one that suits you. If it doesn’t work out, don’t worry. You can always try another one or even experiment with different methods.

Just keep exploring until you find what works best for you. Eventually, you’ll figure out which one is right for you.

Remember, what works for you may not work for someone else, and vice versa.

Even if you choose the right one from the start, the first few months of budgeting will be hard.

Starting out with budgeting can be stout, but if you stick with it and stay determined, you’ll eventually integrate it into your daily routine.

Don’t worry everyone goes through this. Just keep at it, and budgeting will become second nature to you.

Budgeting can help you achieve the lifestyle you want to have without putting yourself in toxic debt.

So, by picking a budgeting method, you’ll also figure out how to make your monthly budget.

5. Stick To Your Budget

For instance, you’ve created your budget, you’ve picked a budgeting method, and you’ve added your financial goals to your budget.

Now what? What’s next?

So, once you figure out how to make your monthly budget, you also need to stick to it.

Creating a monthly budget all by itself isn’t enough. You also need to stick to your budget.

But sticking to it is always the hardest thing to do.

You may fail. We all did. That’s why it’s better to get up, brush yourself off and keep budgeting. And you can – and should – learn from your budgeting mistakes as we all did.

Sticking to your budget can be challenging, but with a few strategies, it’s possible.

Start by tracking your expenses, prioritising your needs over wants, setting realistic financial goals, and rewarding yourself for milestones. Little adjustments can make a big difference.

(And keep in mind everyone’s financial situation is unique).

Review your budget throughout the month and also adjust it if necessary.

It’s easier said than done, especially during the first few months of budgeting.

But as time goes by, it will become easier to budget your money. And eventually, you’ll figure out what helps you to stick to your budget.

Embrace Budgeting

In a world of uncertainty, making and sticking to a budget will make your life less stressful.

Remember, a budget isn’t a tool to restrict you from spending your money. A budget is a tool to help you set your financial goals and priorities.

The right time to set a budget is right now. No excuses.

It might feel like a restriction, but it’s actually a way to prioritize your financial goals and reduce financial stress in your life.

Think of it as a roadmap to financial success.

Stop making excuses that you have plenty of time to save and manage your finances. Time flies by so quickly, and before you know it, you could find yourself overwhelmed with debt.

But you deserve better than that.

By starting a budget now, you can take proactive steps towards securing your financial future.

It’s never too late (or too early) to start, and the benefits will be well worth it in the long run. And you’ll thank yourself later. Stop waiting and take action today so you can figure out how to make your monthly budget.

Final Thoughts

Making a monthly budget doesn’t have to be scary or overwhelming. In fact, with the right approach, it can be empowering and liberating.

Start by gathering all your income and expense information, including bills, receipts, and bank statements.

Categorize your expenses into mandatory and discretionary ones to see where you can make adjustments.

Set specific financial goals, whether it’s building an emergency fund or paying off debt.

Also, regularly review and adjust your budget as needed. 

So, get in the know on how to make your monthly budget asap. 

Remember, budgeting is a tool to help you work towards your dreams and achieve financial success, so embrace it and enjoy the sense of control it brings. It’s all about taking small steps and being consistent.

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