Now that you have an understanding of where your money is going each month, it is time to create your monthly budget. The term monthly budget doesn’t always spark positive thoughts. A budget may be looked at as being restrictive or a hindrance to your lifestyle. I don’t want you to view it that way. A budget is a tool used to help you maintain your standard of living and meet your financial goals.
What are some of your financial goals? Is it to pay off your credit card debt? Save for a down payment on a house? Or increase your emergency savings fund? Whatever your goals may be, budgeting will help turn them into a reality. Create a chart similar to the one I have below. List your goals and figure out how much money you need to obtain them. Then determine the timeframe in which you want to achieve each goal. . Give your goals a priority, because you may not have the funds to accomplish each goal at the same time. Therefore, you may have to wait before you can add a goal into your monthly budget. Below is an example of the worksheet:
|Goal||Total $ Amount Need||# of Months to Reach Goal||$ Need Each Month||Priority|
|Six months of Salary in Savings||18000.00||60||300.00||1|
|Create fund for Home Repairs||5000.00||36||138.88||2|
Now we are going to construct your monthly budget. Use a spreadsheet application to create your budget. If you don’t have access to software, you can construct a chart similar to the one I have below. You will add the following sections:
- Net monthly income
- Monthly expenses
- Lifestyle Expenses
- Financial goals
Subtract the total of your monthly expenses, lifestyle expenses and financial goals from your net monthly income. Below is an example:
|Net Monthly Income|
|Six months of Salary||$300.00|
|Funds for Home Repairs||$140.00|
|Savings for College Tuition||$200.00|
|Net Monthly Income||$3,400.00|
|Monthly Expenses+ Spending+Fin. Goals||($3,240.00)|
After completing your budget, if your balance is positive, meaning you have money left, congratulations! You have created a budget that is within your means and have increased your chances of sticking to it.
If your balance is negative, meaning you do not have any money left, you will need to rework your budget. You have to reduce the amounts designated to your lifestyle expenses and your financial goals.
Remember the amount spent on each item within your monthly budget doesn’t have to be set in stone. You should always be looking for ways to reduce your expenses. Also once you accomplish one of your financial goals you can remove it from your budget and work towards the next goal on your list.
Keep your budget somewhere easily accessible so that you can refer to it and become familiar with it. If you are having trouble sticking to your budget you will need to re-work it or use greater discipline in your spending habits.
If you have any questions or need some advice, just ask. I would be happy to hear from you! Stay tuned for my upcoming posts on ways to save money and stay within your budget!