Are you ready to take control of your money by creating a monthly budget? If so, you’ve come to the right place! Budgeting sounds daunting, but once you get the hang of it, it’s absolutely life-changing. Budgeting will help you pay off debt, save more, reach your financial goals faster, and feel more organized. Today, I’m going to teach you how to make a monthly budget that you can use for the rest of your life.
I also have a free excel template you can download to plug your new budget into!
Before I dive into teaching you how to make a budget, I recommend you download my FREE Digital Budgeting Spreadsheet. Once you have it downloaded on Excel or Google Sheets, read through these instructions and you’ll be able to build your budget on the spreadsheet as you go!
This is the exact budgeting method and spreadsheet we used to Pay of $71k of debt in less than 3 years on a single income. It was a wild ride, but it was so worth it! For us, budgeting has been absolutely life-changing! We still use it to this day to help us plan our money, save more, and live within our means.
Ready? Let’s dive in!
HOW TO MAKE A BUDGET: STEP-BY-STEP GUIDE
Step 1- Understand What a Zero-based Budget is
You are going to be creating a zero-based budget.
A zero-based budget means that you make a plan for every single dollar that you earn, down to the penny, before the month starts. Zero dollars will be left unbudgeted!
Typically, you might plan out all your expenses and then have some money leftover. Don’t leave that money unbudgeted. Plan for it to go to savings or toward your debt, and then you’ll have a zero-based budget! Any outgoing money is considered an expense, even extra debt payments or savings.
INCOME – EXPENSES = $0
Remember, this does not mean you are spending all your money. We are simply including all outgoing money (bills, spending, savings, extra debt payments, etc.) in our expenses so that every single dollar that comes in, goes out and right where it belongs instead of sitting in your bank account tempting you to spend it!
Step 2- Gather Your Materials
Now, let’s gather the materials we will need in order to budget propoerly.
Materials You Will Need to Make Your Budget:
1. Excel or Google Sheets Budget Template (Download my FREE Digital Budgeting Spreadsheet)
2. Spending Tracker
You should use a spending tracker to keep track of each of your transactions during the month. It’s very important to track every transaction!
I personally use the paid app Every Dollar (on my 3rd year). The app costs me $10 a month but it’s worth every penny! It’s very intuitive. It connects to my bank accounts and every time I spend or earn money, a bubble pops up in my app which I can then sort into its proper budget category. This is how I keep track of each of my transactions each month. There is a free version too that many people love! It has the same interface, it just doesn’t connect to your bank accounts and pull in transactions automatically.
All of them work, find the one that works best for you!
3. Bank records from last 3 months (printed out, recommended)
Make sure you print out every single record from the last 3 months, including all credit card statements, checking account statements, etc. Print everything that has any record of your money that came in our went out.
4. Calculator (I use my phone)
5. Pen and paper (I use a cheap $.98 notebook)
Step 3- Setting up Your Budget
Next, I am going to show you how to set up your budget. Feel free to skip to my video tutorial if you are a visual person. Once you’ve watched it, come back here and finish reading so you don’t miss any important details!
Budget Out Each Paycheck Individually
This is the best way to budget because you will be determining what the dollars from each paycheck are actually and literally going to be paying for. It is so much easier to keep track of your dollars when you think of it this way! Follow these steps for each paycheck.
On your digital budgeting spreadsheet, for each paycheck, fill out the following:
1. Write in Your Income. Using your Budget Spreadsheet, write down your expected income under the “income” section. List each paycheck out separately in the sections provided.
2. Create Categories. Moving down to the expenses section, write down all the categories you typically spend money in. Be specific here. Vague categories make your spending harder to track. Include categories for all bills, spending, debt payments, and savings. See below for common budget categories.
3. Estimate Your Expenses. Now that you have categories, list out the amount you expect to spend in each category in the “budgeted” column. Keep reading for how to determine how much to plan in each category.
Common Budget Categories:
Mobile Phone Bill
Write in a category for any expense unique to the month you are currently budgeting for that doesn’t tend to repeat.
Mom’s Birthday Gift
Johnny’s School Supplies
New Office Chair
Step 4- Determine How Much to Budget in Each Category
Hopefully you printed out your last 3 months worth of bank statements. Go through every single transaction and label it with the budget category it falls into. Then, add up the total of each category and divide it by three to get the average spent in each category over the last three months.
$2475 spent on groceries the last 3 months
$2475 ÷ 3 months = $825/month spent on groceries
Next, determine where you need to cut back. If you are struggling to make ends meet or spending more than you make every month, look at the categories you feel are the least essential and where your spending is the least controlled.
Typically, you’ll be able to make big cuts in your restaurant, personal spending, groceries, entertainment, and miscellaneous categories. Try cutting back at least 10% in each one and setting that as your new budget. Don’t be afraid to cut back more if you know you’re spending way too much.
We would cut the $825/mo we have been spending on groceries back by 10% for a new grocery budget of $740/mo.
Now you have a budget set up with all the categories you’ll need, and you’ve made a plan to cut back a bit going forward! Great job.
Let’s take a look at a sample budget and put all of this information into practice. Scan through these numbers and then we’ll break them down!
Next, let’s break this down to make sure we really understand what we’re looking at.
Step 5- Balance Your Budget Each Week to Stay on Track
It’s important to balance your budget regularly to make sure your budget is on track.
What is Balancing the Budget?
Balancing the budget means making sure the money you actually have remaining (your bank balance) matches what you think you have (what your budget says you should have). In order to do this, you need to update your budget with all of your transactions. Then, they should match.
Note: If you have any pending transactions, they may not match 100%. You will have to do some math to figure out what your bank balance would be after all the pending transactions go through.
How to Balance Your Budget:
Once you get paid and begin to spend money during the month, use your spending tracker to keep track of each transaction, both incoming and outgoing.
To balance your budget, pull up all your materials and start filling out your Budget Spreadsheet’s “spent” column with how much you’ve spent up until that point. Your spending tracker will itemize each purchase you’ve made in each category. Your Budget Spreadsheet will only show the totals.
Now you can see how much of your money you’ve spent!
How Often to Balance Your Budget
You should balance your budget very regularly. I do it weekly, and I recommend you do it weekly too. If you go much longer than that, you may find it harder to balance because there will be more transactions to muddle it. To put it simply, wait too long and it gets messy!
Why You Should Always Balance the Budget the Day Before Payday
Make sure you always balance the budget the day before you get paid again. Zero out your account by sending any unspent money toward your main goal, e.g. debt payoff or savings. Make sure your bank account doesn’t actually hit $0, though. Leave a buffer in there or wait to actually move the money until after you’ve gotten paid again.
Will you need that money to cover your expenses for the next pay period? If so, let the leftover money roll over into the next pay period to cover your expenses. Mark the leftover money as income on your budget for the next payperiod so that your master budget will match your bank account. Only let it roll over to the next pay period if you know you’re going to need it for an upcoming expense.
If this seems like a lot at first, you aren’t alone. Budgeting takes a little practice to figure out. Watch the tutorial below to see all of this in action.
How to Make a Budget: Tutorial Video
And that’s it! Do you still have questions about getting a budget started? Please reach out to me!