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Learn how to better manage your money with this simple guide on how to make a monthly budget. Creating an effective and simple budget plan worksheet allows you to take control of your finances today.
Budgets are not sexy but most people admit it’s essential to have a personal budget if you want to manage your money better.
NerdWallet reports in 2023 that 74% of Americans have a family budget and almost all Americans believe that everyone needs a budget. Despite this high number, it is reported that many still overspend.
Creating your own budget should be painless and not nerve-racking like the last interview you had.
If your budget is overly complicated, it’s guaranteed to fail.
Before you master your budget plan, I recommend adding this helpful article to your reading list: Which payment type can help you stick to a budget?
On top of that, I have a little surprise for you! For a limited time, you can steal these beautiful templates from my budget binder for FREE! They will help you track your income, ALL your expenses in organized categories, and put your savings where you want!
You can also learn more about my free budget template worksheets here. These sheets have helped me get into the groove of saving money and building good long-term habits for over a decade.
How to create a budget plan
Avoid bad budgets that are restrictive and make you feel guilty for spending. These kinds of budgets are ineffective and often lead to budget burnouts.
Your personal budget should be flexible and fit your frantic lifestyle. A budget is designed to serve you, not the other way around.
For example, I also have an adult piggy bank on my desk for fun to keep my loose change at the end of the day. This really helps me save extra money without feeling like I’m saving money. How awesome is that?
Whether you prefer to stick to the paper and pen method using a pretty printable budget binder like this, or creating a budget spreadsheet in Excel, making your own budget gives you insights into where your money is going so you can make better financial decisions and reach your financial goals.
Here are 5 simple steps to creating a budget that you can stick to.
Step 1: Set your goals before creating a budget plan
Before you even pick up that pen or turn on your laptop, you need to know what you are trying to achieve with a budget.
“A goal without a plan is just a wish.” – Antoine de Saint-Exuperys
What are your short-term and long-term financial goals?
Are you making a budget so you can pay off your debts and get your life back on track?
Are you’re tired of living paycheck-to-paycheck and want to break out of the deadly cycle to get ahead.
Maybe you’re saving for a down payment to buy a house. Or perhaps you’re saving now so you can retire early and hit the beach every day instead of dragging yourself to the office.
No matter what your goals are, how big or small, write them down. Remind yourself of these goals and why they’re important to you.
Having realistic goals motivate us to work towards those goals and not give up halfway. You may not realize, but psychological effects are stronger than you think.
Here are some reasons why people create a budgeting plan.
Step 2: Choose a budget type that fits your personality
When it comes to budgeting, there is no one-size-fits-all that will work for everyone. In fact, there are many types of budgeting systems available to help you achieve your financial goals; each one has a different strategy to get you there.
The key is choosing a budget plan that matches you and your lifestyle.
The Envelope System
The envelope system is a cash-only system and has been around for a long time. It’s simple but powerful.
How this system works is you use hard cash to pay for things (sorry, credit cards are not accepted).
To start, you’ll need to write down your budget categories – groceries, restaurants, entertainment, etc. – onto separate envelopes and stuff it with cash. The amount of cash you put into each envelope is your monthly budget or spending limit for each category.
When you spend, you’ll need to take cash from the envelopes to pay for things.
Once an envelope runs out of cash, that’s it. No more spending in that category for the rest of the month. You’ll need to wait for next month to fill up the envelope with cash and spend again.
The idea behind this system is to get you back in touch with your money. Paying things with your cash hurts a lot more than tapping or swiping with your plastic cards.
The envelope system is old school, but it works.
Perfect for you if you lack the discipline to stick to a budget and want to curb your spending.
The Reverse Budget
This is actually my favorite budgeting method because, in my opinion, it doesn’t feel like I’m budgeting.
Traditional budgeting tells you to save the remaining of your paycheck after paying your living expenses. But for most people, the reality is that after all your bills and expenses are paid, you’re left with nothing.
The reverse budget system turns your finances around by focusing on this concept:
Pay yourself first.
This budgeting method “reverses” the budgeting process by prioritizing savings over expenses.
When you receive your regular paychecks, the first thing you need to do is take care of yourself by saving a portion of that money. After you’ve set aside money to meet your monthly savings goals, then you move on to pay your living expenses.
This way, you won’t be the last person in line, thinking there will be money left over for you. That’s wishful thinking.
This type of budget works best for people that find it challenging to save money at the end of the month.
It is also perfect for those who prefer to save first before spending.
As Warren Buffett puts it: “Do not save what is left after spending, but spend what is left after saving.”
The Zero-Based Budget
The principle of the zero-based budget is to put all of your hard-earned money to work. Every single dollar and penny has a purpose – put food on the table, pay off debt, build an emergency fund, etc.
By following this approach to budgeting, your income (inflows) needs to match your expenses and savings (outflows) by the time you’re done with your budget.
When you assign all your money to a job with a free budget sheet template like this, you’re being intentional with your money. You can direct it to savings or debt repayment as opposed to bucketing that leftover cash to the miscellaneous category.
We all know that miscellaneous spending is just another name for fun money.
With great power comes great responsibility.
The zero-based budget is best suited for people that like to plan ahead, don’t mind tracking their expenses, and want full control of their money.
The 50/30/20 Budget
Budgets that have short lifespans tend to emphasize cutting out or eliminating costs altogether and leave no room for fun. What’s the point of saving money if you don’t get to live a little?
This is where the 50/30/20 budget comes in and saves the day.
The philosophy behind the 50/30/20 budget is balancing your needs, wants and savings. This allows you to work towards your financial goals without having to unfriend everyone on your friends’ list.
The way it works is very straightforward.
50% of your paycheck is allocated to take care of needs like housing, food, transportation, and health insurance.
30% of your income goes to wants, such as dining out with friends, service subscriptions, and entertainment.
20% of your paycheck is dedicated to savings and paying off debt. This includes building an emergency fund, contributing to your 401(k) plan, and debt repayment.
The 50/30/20 budget is ideal for people that prefer simplicity and a balanced approach to budgeting.
👉 You can learn more about the 50 30 20 budget rule here in greater detail to see if this budgeting method fits your personality and style of budgeting.
How to create a budget plan for beginners with free printables
Are you new to budgeting?
While I was searching for the best frugal living tips to help with my savings goals, I also created a set of budget printable templates that are easy to use.
I would love to share this printable budget binder with you, so you can build a better relationship with your money too!
These are the templates we used to help manage our money and save over six-figures over the years. Download your free budgeting printables here. 🙂
Step 3: Add up your after-tax income
Add up all the money you and your spouse receive from full-time or part-time work, government benefits, side hustles, etc.
Look for your after-tax income, not the gross income.
For those of you that receive steady bi-weekly paychecks, your monthly take-home pay is your after-tax income.
Many employers have 401(k) matching programs where they will match your contribution to your 401(k) account. Make sure you contribute enough to get the full match from your employer. This is one of the easiest ways to get free money and you can’t afford to miss out on it.
When you contribute a portion of your salary, via deductions, to your 401(k) account, count it towards your savings goal.
Now, if your monthly income fluctuates, you can take the average after-tax income of your last 6-12 months as your starting point.
Do you earn extra income on the side by doing freelance work? Include that as part of your total income.
Needless to say, finding ways to make extra money can help tremendously and gives you more flexibility with your budget.
⭐ One of my top recommendations and favorite ways to earn extra income is starting a blog.
Just two years ago, I started this blog as a fun hobby while working my everyday 9-5 job.
I was looking for ways to improve my financial situation and starting this blog allowed me to document my financial journey while learning how to earn extra money online. To learn more, you can visit my step-by-step tutorial on how to start a blog for beginners. I went from earning an extra $1,000+ per month to turning it into a full-time income today.
The extra money definitely gave me more flexibility and allowed me to stretch my budget on things that matter to me like vacation and dining out with friends at my favorite restaurants.
Step 4: List all your expenses
Your bank account is the Bermuda Triangle for money. Money that enters it disappears without explanation. It’s one of life’s greatest mysteries.
Well, you’re going to bust this mystery once and for all.
Easy, you’re going to review your past transactions for the previous months to see where your money went.
Simply download your credit card and bank statements for the last 3 months and allocate all your expenses into spending categories – housing, utilities, groceries, transportation, entertainment, and so on. Cash purchases for coffee and snacks are easy to miss so be sure to include these expenses in your budget.
This is the perfect opportunity to bucket your spending between needs, wants and savings to see how close or far you are from the 50/30/20 budget. It’s also the perfect opportunity to see what unnecessary things you’re spending on.
This step is often a reality check for many people because most of us don’t know exactly how much we spend on necessities, nice-to-haves, and savings – if any.
Don’t make excuses to justify your overspending nor be too harsh yourself. Take a moment to reflect on your spending habits and commit to making changes. This is why you’re making a budget, to improve your financial situation.
Related post on budgeting and expenses: How To Stop Buying Stuff You Don’t Need Online
Step 5: Review and make adjustments
Once your budget is set up, it’s important to check how you’re doing. Budgeting is meaningless if you don’t assess whether you are on-track or overspending in a category like entertainment.
For beginners, it’s wise to review your budget on a weekly basis and make necessary adjustments as needed. As you get the hang of budgeting, you can revisit and fine-tune your budget every month.
Your budget needs to be flexible enough to fit your lifestyle because you know, life happens.
The next thing you know, your best friend wants to get married to their soul mate next month after 3 months of dating! You don’t have a magic genie to grant your wishes so you better shuffle some things in your budget if you still want to have a best friend.
FAQs About Budgeting For Beginners
1. How should a beginner start a budget?
The first step is to know your net income – this is exactly how much you earn after taxes. Next, calculate your monthly expenses which are basic necessities which include shelter, food, utilities, etc. Then you can:
- Categorize expenses into fixed (e.g., rent) and variable (e.g., groceries).
- Identify non-essential but lifestyle-important expenses like subscriptions.
- Define short and long-term financial goals, e.g., house down payment or emergency fund.
- Decide on a savings amount, ideally 10-20% of your income.
- Track spending with apps or spreadsheets and adjust as needed.
- Eliminate unnecessary expenses if spending exceeds income.
- Reserve funds for unexpected costs.
- Periodically review and adjust your budget.
- Stay informed on financial news.
- Seek expert advice if you are overwhelmed.
2. What is the 50-30-20 budget rule?
The 50-30-20 budget rule is a straightforward personal finance guideline for managing your finances. It suggests allocating 50% of your net income towards necessities like housing and food, 30% towards savings and debt repayment, and 20% towards discretionary expenses like entertainment and dining.
This rule offers a balanced approach, ensuring you cover essential costs, save for future needs, and still enjoy some leisure activities. It’s particularly popular among young adults and those new to budgeting.
For a more in-depth exploration of the 50-30-20 rule and its intricacies, check out my separate article that answers the question, “What is the 50-30-20 budget rule?”.
Final thoughts on how to create a budget
Learning how to create a budget is the first step to gaining control of your finances.
Remember that everyone is unique and has different needs and wants. What works for others may not work for you.
Keep a balanced lifestyle and ask yourself which spending categories you absolutely can’t live without and which ones you can afford to scale back on.
Be careful to not let others dictate what you should and shouldn’t spend on.
It’s your life, your money. Do whatever makes you happy. 🙂