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Your Complete Guide to Creating a Monthly Budget in 2020
How to Create a Good Budget
The principles that make a good budget, something you can stick to:
- Being Realistic: Being too strict is a recipe for failure.
- Making Adjustments: A budget is not set in stone, but a fluid thing.
- A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
- Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
- Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.
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A Monthly Budget For Your Money
No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.
Having a budget doesn't stop you from spending money the way you want it to, but works like a partner to track your spending and allocating resources to help you reach your financial goals.
The Envelope System
The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.
This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.
How to Create a Good Budget
The principles that make a good budget, something you can stick to:
- Being Realistic: Being too strict is a recipe for failure.
- Making Adjustments: A budget is not set in stone, but a fluid thing.
- A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
- Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
- Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.
Start Budgeting
Follow these simple steps and start Budgeting:
- Choose the right tool (Budgeting App, Excel sheet or Envelopes)
- Gather all information like your bank and investment account numbers, user id's, and passwords.
- Make a list of all your income sources and all your expenses.
- Share the important financial and budgeting details with your partner or spouse if applicable.
The 50/30/20 Rule
It breaks down your budget categories into three broad segments:
- 50%: Essential Expenses like housing, automobile expenses, groceries, insurance, utilities, etc.
- 30%: Discretionary Expenses (Non-essential) like Dining out, entertainment, drinks, etc.
- 20%: Financial Goals including mortgage, home, and educational savings.
If there is heavy credit-card debt, the financial goals should be 30% and non-essential spendings only 20%.
SIMILAR ARTICLES & IDEAS:
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Key Ideas
Budgeting = creating a plan to spend your money
Budgeting is simply balancing your expenses with your income.
It's a plan for the coordination of resources and expenditures. When you budget your money, there’s a desir...
How to create a budget
- Gather Some Financial Information: gather a detailed list of your income and expenses.
- Select a Budgeting Method: figure out how you’ll budget your money to meet your most pressing financial goals.
- Create Your Budget: tally up all your expenses and income to see where you stand and allocate expenses.
- Execute Your Plan: you can use a notebook, pen and paper, a spreadsheet or an online software.
- Reward Yourself: you can work a small percentage into your budget to treat yourself each month.
The 70:20:10 budgeting method
This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.
70:20:10 may work for someone with a healthy emergency fund and minimal debt.
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Making Your Budget Too Strict
Budget for the life you have. When you’re going through your budget and assigning spending categories, be realistic.
Don’t tell yourself you’ll never buy a single discretionary i...
Budgeting for a Life You Can’t Afford
This becomes a problem when you’re spending for a life you can’t afford. It puts pressure on your budget and encourages you to live in a paycheck to paycheck cycle.
Assess your financial situation, cut back on your expenses, prioritize your money goals, and then come up with a new spending plan.
Budgeting Without a Purpose
It’s hard to stick to a budget that doesn’t have a goal.
When there isn’t one, your budget becomes an afterthought rather than a spending plan to reach your financial goals.
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The zero-sum budget
Using this method forces you to “spend” every dollar that you make, by allocating all of your earnings into the different categories that your finances require.
It prevents waste and m...
Steps of the zero-sum budget
- Determine how much you make on any given month.
- List your bills: Once you determine how much money you'll make this month, figure out how much money you need to spend next month.
- Compare and contrast: Once you see your monthly income and your monthly bills on paper, a clear picture of how much money is left over emerges.
- Spend all of your money on paper: decide where that money will serve you best.
- Track your spending.
- Make adjustments to get it right.