Making Your Monthly Budget: Tips and Techniques to Take to Control of Your Finances and Your Future

When you sit down to create a monthly budget, you’re not only organizing your money habits. A monthly budget is about much more than that. By breaking down your spending habits and behaviors, and creating a plan of action, you’re giving yourself a chance to control your finances and your future. Take these steps and use these tips to build a monthly budget that works for you—and meanwhile, you’ll see a strategy for enabling your ideal future begin to take shape.

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How to Make a Monthly Budget

To craft your monthly budget, start with the budgeting basics. Follow these simple steps to get the ball rolling:

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Calculate Your Monthly Income: Start with your monthly after-tax income or “take-home” pay as your spending limit for each month. If your income varies from month to month, use an average based on the last year or start with your low-earning month of that year as a baseline. Also be sure to include other sources of income like Social Security payments.
Tally and Understand Your Monthly Expenses: Write down all of your expected monthly expenses, including your mortgage or rent, groceries, utilities, transportation, debts, and entertainment. As you’re tallying these expenses, make note of which ones might fluctuate from month to month, as well as which ones are fixed. For categories of spending that change over time, examine recent statements from your bank or credit card provider to estimate how much you tend to spend in these areas each month.
Make Adjustments: Subtract your expenses from your income and see whether you are in the positive or negative. If your budgeted expenses are greater than your income, then you’ll need to identify areas where you can cut spending.

Monthly Budgeting Techniques and Goal-Setting

Even if your expenses are lower than your income, you’ll likely want to make some adjustments, too. Once you have more finalized income and expense numbers to work with, it’s time to work toward a sustainable plan that not only accounts for your spending but makes sure you’re doing that spending in the right places and on the right things for you. To help you do just that, use these techniques to help allocate your budget toward the right mixture of expenses.

Use Proportions

If you’re unsure of how to initially structure your budget in a way that leads to savings, some common budgeting systems might come in handy. The 50/30/20 rule is one of the most common—and straightforward—systems for monthly budgeting. Using this rule, you can aim to spend your money in the following fashion:

50% on Needs: Allocate half of your monthly after-tax income to your needs—things like rent or mortgage payments, groceries, and utilities.
30% on Wants: The next 30% of your spending goes toward your desires, the things that keep you happy. This should account for everything from nights on the town and takeout, to hobbies, leisure travel, and subscriptions.
20% on Savings and Debt Repayment: The remaining fifth of your monthly budget can then be allotted to repaying any outstanding debts (car payments, student loans, etc.) and to building up your savings—whether that’s a college savings or retirement plan, savings for a new home, or an emergency fund.

However, one drawback of the 50/30/20 rule is that some may struggle to clearly distinguish between some expenditures that are “wants” and “needs.” To simplify this, some budgeters instead use an 80/20 rule, where 80% is allocated toward both of these categories while the remainder is used for debt and savings. In yet another example of a proportional budgeting system, users of the 70/20/10 system cut their spending on wants and needs to 70% of their monthly budget, use 20% toward debt and personal savings, and a remaining 10% for long-term investments in things like retirement, college, and a new home.

Use an Envelope System

Even after you have your monthly budget categories outlined, it can be difficult to stick to them and always avoid overspending. A so-called envelope system can help you stick to your budget. Using your choice of cash and physical envelopes, a dedicated app like Goodbudget, or specific “sub-savings” accounts, this method calls for determining and maintaining strict spending limits on your various expense categories.

Whether your categories are as general as those in the 50/30/20 breakdown or include many more specific categories like “eating out” and “coffee breaks,” the envelope system requires you to draw money from the matching envelope or savings account. This way, you know that once you’ve run out of money in a given envelope, you must wait until the next month to spend any more on that item, activity, or category.

Account for Your Goals

A monthly budget that considers and reflects your own personal priorities isn’t just the right kind of budget—it’s the most sustainable one. No matter if you’re using a pre-set 50/30/20 system or your own personalized plan, be sure that it doesn’t just consider the present day-to-day but also your future. If you have your sights set on a future dream home, a new car, or a special trip next summer, factor incremental savings toward these aspirations into your monthly plan. Using a target amount and date, you can calculate just how much you need to spend and save each month to meet your goals over time.

Budgeting Tips to Make Yours a Success

Mastering your monthly budget will take some time and plenty of effort. Use these budgeting tips to help make your journey toward a working budget a much smoother one.

Get Some Help from Technology

While you might opt for an old-fashioned paper envelope system, in our digital age, there are countless budgeting apps that you can use to keep track of your spending. Apps like Mint offer a free, one-stop-shop for custom budgeting and tracking spending, while zero-based budgeting apps like EveryDollar help you put each cent of yours toward something specific.

Meanwhile, spreadsheets in Microsoft Excel and Google Sheets offer endlessly customizable ways to track your spending, your way. And you don’t need to be an accountant or Excel whiz to do so—pre-made budgeting templates are available to make it an easier process.

Make Space for Surprises

At the end of the day, no budget is ever going to be all-encompassing. After all, life is full of surprises; so ensure that your budget includes a category for surprise expenses or for savings toward an emergency fund that can help cover them. Here, the worst case—that you don’t have any surprises in a given month—is the best case. Any unused funds in this category can be put toward your savings or put to use elsewhere.

Stick with It

Just as no budget is perfect, no budget is ever final. Income, expenses, and aspirations all change as time goes by. Set time aside each month to adapt your budget and see that it’s still the best it can be. In the meantime, you can lean on more of our useful budgeting resources that help you make sure your budget, your finances, and your future are in your control.