How to Write a Monthly BudgetJuly 10, 2016
According to Dave Ramsey, a person’s biggest wealth-building tool is their income, and the best way to harness its power is to create a monthly budget.
Updated April 10, 2020
Writing a budget is the first step — and possibly the most successful way — for a person to take control of their money, their finances, and pay off any outstanding bills (like student loans). In fact, most financial experts recommend that those who wish to save money for the future and any upcoming expenses, as well as pay down outstanding loans and bills, should create some type of a monthly budget. Most who find their way to this budgeted path will agree that writing and sticking to the budgeted plan can be painstaking — at first — but once it is in place, and they see the financial gains, it is well worth the initial trouble.
For those who are uneasy about writing a budget, are unsure where to start, or simply need a little push in the right direction, we are here to help. The following information is dedicated to helping first-time budget writers — with all levels of debt and income — find their ideal monthly budget. We hope it guides every reader toward financial freedom and independence!
How to Create a Simple Monthly Budget
Step 1: Calculate Total Income
Budgeters should begin their monthly budget process by figuring out how much they (and if applicable, a spouse or partner) bring home each month. Start by calculating the total take-home pay (after tax) for the household. This figure should include every ongoing source of income.
Step 2: List and Tally All Expenses
Step two involves calculating all regular bills (mortgage, utilities, student loans, credit cards, insurance, cell phones, etc.) and any irregular bills (quarterly payments like insurance) that are due the following month. The next step involves totaling what is generally spent on all other expenses: groceries, eating out, coffee, gas, entertainment, etc. Every dollar spent should be accounted for.
Step 3: Subtract Expenses from Income to Equal Zero
Subtracting total expenses from the total income will reveal how much each individual or household is (or is not) spending each month. Some financial experts suggest configuring this part of the budget to create something called a “zero-based budget,” where the total income minus all expenses (including any savings, loans, or investments) equals zero. This method ensures that money is told exactly “where” to go — into savings, towards paying down student loans, etc. — and therefore, cannot be spent in any other way. These free accounting forms and programs may help: Dave Ramsey’s Monthly Cash Flow Plan form or Dave Ramsey’s Irregular Income Planning form.
Step 4: Monitor and Track Expenses Each Month
Diligence and commitment are necessary elements of all financial budgets, and staying on track — and minding the original monthly budget — can be a hard task for even the most dedicated budget-master. To help those who are serious about their budget, or simply need a little extra accountability, special tracking tools, and apps exists to help users monitor and maintain their expenses. Here are some free options and community favorites:
- Write one down on pen and paper.
- Develop a personal Excel spreadsheet.
- The Envelope System. This system involves acknowledging and setting up categories in which a person usually overspends (eating out, clothes, groceries, etc.). Each month, money for these categories is cashed out (so money is not in the bank) and carried with the person in dedicated envelopes or clips. This enables each person to visually see how much money is being spent in each category, as well as how much money remains throughout the month.
- Dave Ramsey’s Every Dollar software and budget app is a quick and easy way to see what is planned for the budget, what has been spent, and what remains.
- Mint by Intuit is a well-known budgeting app that automatically tracks a user’s finances. Users simply enter basic financial information and the program tracks the rest. Other benefits include goal setting options and data that feeds into TurboTax at tax time.
- PearBudget is a really simple budgeting and expense tracking service. It contains common and customizable expense categories, is secure, and it is easy-to-use for first-time budgeters. Some may find it less automated than Mint, but users do get some extra goal setting and planning features. PearBudget costs $4.95 a month after a free, 30-day trial.
- Clarity Money is a free budgeting app that can also help you manage your finances and track your spending by recommending ways to lower your bills, manage your subscriptions, and get the best credit card deals.
- GnuCash is a fairly robust accounting software program that is both free and suitable for most operating systems — as well as home and small business use. Along with its ability to track income and spending, the software also tracks banking, investing, and retirement accounts.
Final Thoughts on the Monthly Budget
Saving money, paying down student loans, and getting out of debt takes time. With a plan and a dedicated budget, the journey can be much shorter and less stressful. When budgeting, it is also important to live reasonably and spend within — and possibly below — your means whenever possible. A generous cut-back on unnecessary and frivolous expenses is a necessary part of creating a budget, but remember that it is ok to live comfortably and have some fun every now and then. Just make sure some “fun money” is written into the budgeted plan so that these expenses do not hinder the main objective — getting out of debt and saving money.
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Please note that we are not affiliated, getting paid to mention, or specifically endorse any of these budgeting products or programs.
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