How to Start a Monthly Budget
Starting a budget can be overwhelming. Let's break it down into some easy steps.
Have you ever found yourself asking, where on earth did my money go last month? You're not alone. And for the folks out there with young children, the problem only gets worse.
Luckily, Budget Even is here to help. Forget about connecting outside accounts and syncing transactions for now, let's start with the basics.
Step One: Define your expected income for the upcoming month.
Your expected income will be the basis for which you can start planning your monthly budget. If you receive a salary, this should be a pretty easy question to answer. Just take a look at your bank account from the prior month, add up all of your deposited paychecks, and voila, you have your expected income for the month. For variable income, or commission based income, look back at the past six months of your paychecks, add up all of your deposited paychecks, and then divide by 6 to arrive at a rough estimate. To continue with our example, let's take the national average salary in America of around $64,000. Monthly, that amount equates to $5,333 and factoring in tax withholding, and some additional items like 401(k) contributions and health insurance premiums, let's settle on an 80% net deposit of around $4,266. Utilizing Budget Even, we can then enter $4,266 as our planned Income for the month.
Income
Description
Planned
Received
Remaining
Paychecks
$4,266.00
$0.00
$4,266.00
Step Two: Plan your expenses.
Effective budgeting requires organization. Our preferred method is to organize our expenses by groups with line items. For example, "Food and Beverage" can be the name of a budget group, with line items of "Groceries","Dining Out", and "Coffee". Once you've completed the "Food and Beverage" group, create a few more groups like "Housing","Transportation", and "Entertainment." For our scenario, it'll look like this:
Food and Beverage
Description
Planned
Spent
Remaining
Groceries
$0.00
$0.00
$0.00
Dining Out
$0.00
$0.00
$0.00
Your turn. If you utilize credit cards, pull up your statements from the prior month. Ditto for your bank account statements.
Take a look at your statements, get a calculator out, and add up all of your grocery expenditures. For our example, let's say we spent $500 total on groceries last month and $150 on dining out. So, we'll input those values in the corresponding line items.
Food and Beverage
Description
Planned
Spent
Remaining
Groceries
$500.00
$0.00
$0.00
Dining Out
$150.00
$0.00
$0.00
Continue going through your statements and adding up totals for your Transportation group and your Housing group. Gas, for example, should be a line item in your Transportation group if you drive a car. Along those lines, you'll probably need to add an insurance line item, a maintenance line item, and if applicable, a car payment line item.
Now, for your personal budget, continue looking through your statements and create your own custom groups. Do you have kids? Create a kid group. Pets? Create a pet group. Take some time to organize you budget, name your line items, and adjust values as you see fit.
Step Three: Review your budget daily and track your expenses.
Set aside 10-15 minutes every day to record your expenditures. Bought groceries yesterday? Did you fill up your car with gas? Add entries for each transaction to their corresponding line item. Using Budget Even, all you need to do is tap the add transaction button, enter in the transaction details, hit submit and the transaction will be recorded.
12-15
$62.47
Kroger
Group Name: Food and Beverage
Line Item: Groceries
By reviewing and recording your transactions daily, you'll start becoming more aware of how much money you are actually spending.
Step Four: Stay Budget Even
If you had planned $500 for groceries in a given month but you spent $550, your budget is no longer even as you have overspent by $50.
To correct the overspent line item, you'll need to look through the rest of your budget to identify any line item, or line items, that have excess funds available to reallocate. For example, let's say you only spent $100 on dining out, but had planned to spend $150.
Food and Beverage
Description
Planned
Spent
Remaining
Groceries
$500.00
$550.00
-$50.00
Dining Out
$150.00
$100.00
$50.00
So, knowing there is an extra $50 in the Dining Out budget, you can reallocate that amount to Groceries. The dining out budget goes to $100 and the grocery budget increases to $550 to return to budget even.
Food and Beverage
Description
Planned
Spent
Remaining
Groceries
$550.00
$550.00
$00.00
Dining Out
$100.00
$100.00
$00.00
The main takeaway from this exercise is that you now know that you cannot spend anymore money on dining out for the rest of the month. Throughout the month, you'll need to continually reallocate adjust your budget according to your expenditures.
Once you have the hang of budgeting, reallocating, and tracking your transactions, create a "Savings" group and commit at least 10% of your net income each month to a savings account. Automate your savings contribution if possible, the less you think about it, the easier it is!
-Patrick Lysaght, Founder