Developing a Personal Monthly Budget

Creating a monthly budget is a crucial step in managing personal finances effectively. Below is a seven-section outline that you can use as a guide to develop your own personalized monthly budget:

  1. Income
  2. Primary income sources
  3. Salary/wages
  4. Freelance income
  5. Rental income
  6. Secondary income sources
  7. Side gigs
  8. Investments
  9. Other sources
  1. Fixed Expenses
  2. Housing
  3. Rent/mortgage
  4. Property taxes
  5. Home insurance
  6. Utilities
  7. Electricity
  8. Water
  9. Gas
  10. Internet/cable/streaming
  11. Transportation
  12. Car payment
  13. Insurance
  14. Fuel
  15. Maintenance
  16. Insurance
  17. Health insurance
  18. Life insurance
  19. Other insurance policies
  20. Debt Payments
  21. Student loans
  22. Credit card debt
  23. Other loans

III. Variable Expenses

  1. Groceries
  2. Dining out
  3. Entertainment
  4. Movies
  5. Concerts
  6. Hobbies
  7. Personal Care
  8. Toiletries
  9. Haircuts
  10. Gym memberships
  11. Transportation
  12. Public transportation
  13. Ride-sharing
  14. Miscellaneous
  15. Gifts
  16. Donations
  17. Subscriptions
  1. Savings and Investments
  2. Emergency fund contributions
  3. Retirement savings
  4. Other investment contributions
  5. Savings goals
  6. Short-term goals
  7. Long-term goals
  1. Debt Repayment Plan
  2. Prioritizing high-interest debts
  3. Allocating extra funds for debt repayment
  1. Review and Adjustments
  2. Regularly review budget vs. actuals
  3. Adjustments for changes in income or expenses
  4. Periodic reassessment of financial goals

VII. Tools and Resources

  1. Budgeting apps
  2. Spreadsheets
  3. Financial advisors
  4. Educational resources

Remember, the key to a successful budget is regular review and adjustment. Life circumstances change, and your budget should reflect those changes to remain effective.

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Developing a Personal Monthly Budget

Whether you have dug yourself out from major debt or are still on the path to financial health, one of the best strategies available to you is creating and maintaining a regular budget.

For some consumers, budget is a scary word. It means restrictions, limits and rules.  However, if you reframe your thinking, a budget can be your road map to financial safety. Just like you wouldn’t embark on a cross-country trip without a GPS, you shouldn’t expect to reach financial freedom without a budget. 

Count Your Income

Before you start writing out your expenses, you should calculate your income.  Many consumers have two income sources: a primary and a secondary source.

A primary income source can include:

  • Salary or wages
  • Freelance income

Secondary income sources can include: 

  • Rental income 
  • Dividends 

A primary income source is what pays the bills on a regular basis, whereas a secondary income source is less consistent. If you have irregular income as your primary source, use the average amount you earn every month. You can also play it safe and use the lowest amount you typically earn.

Secondary income can be less reliable than primary income, so only include it in your calculations if you are confident. For example, rental income from a property is generally fairly dependable, while freelance income may be less predictable. 

Determine Your Fixed and Variable Expenses

Most people have two kinds of expenses: fixed and variable. Fixed expenses are costs that remain the same month after month. These typically include:

  • Housing, i.e. mortgage or rent
  • Debt payments
  • Transportation
  • Insurance
  • Childcare

Most expenses are variable, which means that the amount due will change every month, no matter how tightly you budget.

Variable expenses include both necessary and discretionary expenses, such as:

  • Groceries
  • Utilities 
  • Dining out
  • Entertainment
  • Clothes and accessories 
  • Personal care
  • Gifts and charitable contributions

You can also create a more general set of categories, such as needs, wants, debt payments and savings. You can be as vague or as specific as you want when deciding which categories to include. For example, some people use a general “food” category while others want to divide expenses between “groceries” and “restaurants.”

Savings and Investments

One of the staples in a budget should be your contributions to savings and investment. To start, you should have an emergency fund that can be used for any unforeseen expenses, like a trip to the ER.

Next, you should also be saving toward retirement, in a workplace-sponsored plan, like a 401(k) or an IRA. Many parents also choose to save for their child’s college expenses in a 529 plan.

You can also save for short-term goals, like a vacation or home renovation, or a longer-term goal, like buying a new car.

Debt Repayment Plan

One of the most compelling reasons to create a budget is to pay off your debt faster and save on interest in the process. You can do this by finding extra money in your budget and putting it toward your debt.

If you do have extra funds, you can either put it toward your debt with the lowest total balance or your debt with the highest interest rate. Pick whichever option makes you feel more in control of your finances – there’s not necessarily a right or wrong choice.

Review and Adjust

A common error that people make when creating their budget is that they don’t change the budget when their circumstances change. Your life is not static, and your budget shouldn’t be either.

For example, you might start a new job with a higher salary, but also a more costly health insurance premium. Or your child might move to a new daycare center with a lower weekly cost. 

If you find you’re underspending in a category regularly, you can allocate extra funds to another category or goal, like paying off debt or investing more for retirement.

Also, if you’re always overspending in a particular category, it doesn’t mean that you’re undisciplined. It could just mean that you’ve allocated too little to that specific category. Try upping the amount and see how it feels.  

Tools and Resources

Nowadays, there are many different ways you can budget. You can find paid and unpaid apps, software systems and pre-made spreadsheets. If you’re tech-savvy, you can even set up your own spreadsheet via Excel or Google Sheets.

If you’re old-school, you can also track your spending with pen-and-paper, although this method will require checking in with your debit and credit card purchases.

You can also ask a friend to be an accountability buddy when it comes to budgeting. Choose someone who has similar goals and struggles. Decide on how often you want to meet to discuss your budget. You can also ask them to keep you on track if you want to buy something that’s not in the plan.

Also, don’t forget that budgeting is a skill that you have to learn, like speaking a new language or playing a sport. It’s not an innate skill that you’re born with. Don’t beat yourself up if it takes you a while to learn how to stay under budget.

Still want more help in building and managing your budget? Use the DWD educational resource library where you can find more tools and techniques that can take you from budget beginner to budget master,