Ever started a budget and it totally fell apart? In this post, I’ll show you how to make a monthly budget that you can stick to!
Why is this so important? Your budget is what makes or breaks you financially. It is the Google Maps equivalent in the road trip of life. Without a clear set of directions, your money will get lost.
And let’s face it: you work too hard to let that happen! So let’s cut the frustration out of making a monthly budget and get down to what works.
I’ve learned through my years of financial coaching that the word budget has approximately three bazillion definitions.
When a new client says they are already using a monthly budget, I immediately know the next question to ask: tell me about your budgeting process.
Much of the time, making a monthly budget entails listing out bills and a big miscellaneous category.
Other times, making a monthly budget means paying off the credit card on time.
And for others, it means coming up with a budget for the entire year and dividing it by 12.
Yikes! Love the ambition, but only a fortune teller could make this kind of monthly budget work.
And for others, the word budget means not spending money on anything that’s unnecessary.
No wonder people hate making a monthly budget so much!
Fortunately, it’s not hard to make a monthly budget when you know what it’s supposed to be.
A true monthly budget is zero-based. This means your take-home pay minus all your budget categories equals zero.
If you bring in $5,396, then you need to allocate $5,396 into budget categories, not $3500 of bills and retroactive accounting of $1900 of miscellaneous Target receipts.
A budget is planning what you will do with your income in the month ahead.
Every dollar of it.
That’s all well and good if you make the exact same amount every month. But what if you earn an hourly wage, or if you earn commission?
One of the most common questions I get asked is, “how can I budget for the month ahead if I don’t know what my paycheck will be?”
Simple: estimate a low paycheck amount. What’s the lowest amount you’ve been paid in the last three months? Use that number to start.
Then, when you get your paycheck, you can allocate any extra money to your budget categories. That’s way more fun than overestimating your paycheck and having to cut your spending mid-month.
Why do 80% of people give up on their budget after only one month? Because they don’t have a goal that matters to them.
You need to define what it is that you want to accomplish with your money.
Whether it’s saving for retirement, paying off debt, giving more generously, or saving for a car, take some time to reflect on why you are doing this.
Then write it down. You are 42% more likely to be successful when you write down a goal!
And keep in mind, you WILL mess up your monthly budget in the first month. You’ll have some victories, for sure, but it’s not going to be perfect. That’s okay!
You wouldn’t expect to enter a bodybuilding competition after only one month at the gym, would you? Of course not!
I promise you will keep improving as long as you stick to it, just like with anything in life. To make it easier, here is a list of the 40 most commonly forgotten budget categories.
If you say you’re going to save money for something, then put it in a savings account.
If you are going to use cash envelopes for spending categories, schedule weekly trips to the ATM like it’s an important work meeting.
Finally, keep a minimal amount of cushion in your checking account. You want between $50 and $200 extra in checking.
This is not extra spending money, but is simply there to catch a potential “Oops! I forgot our Amazon Prime renewed this month!”
Keeping a minimal checking account cushion will help you stay accountable to the monthly budget you have made, but it will also protect you against overdraft charges from honest mistakes.
After all, a monthly budget should help you feel LESS stressed about money, not more.
My budget used to sit on a desk collecting dust. It pains me to admit this.
I thought I could get away with doing mental math, keeping a running total of spending for all my categories.
If you want your budget to fail miserably, keep trying that.
If you want to make a monthly budget that you can stick to, then commit to developing the habit of tracking your purchases so that your budget becomes a guide that tells you when you can spend and when you need to stop spending.
Even with an excellent budget app, this is one task you cannot automate if you are serious about sticking to the budget.
Car registration, tuition payments, annual subscriptions, there are so many expenses that only occur once or twice a year, but they take a big chunk out of the paycheck.
For large expenses (say $200 or more) like these, you want to create sinking funds in your budget. This is like having mini savings accounts for specific expenses.
Take the total amount you need to save and divide by the number of months you have to save the money. That is how much you will put in your monthly budget.
Christmas is a perfect example, If you want $1200 to spend on Christmas, then save $100 a month starting in January.
Sinking funds will help you to ensure large “unexpected” expenses don’t derail the entire month.
And that is how to make a monthly budget that you can stick to! To help you on your journey, I’ve created a free resource library with all the tools you need to be successful with your money.
Sign up below and I’ll send you the password, along with a weekly dose of financial inspiration!
Email me with your budget questions: firstname.lastname@example.org and follow me on Facebook @thedetermineddollar