It is always important to be aware of how you are spending your monthly income. Knowing your expenditures can help you make financial decisions that can be used to reach any goals you have for saving more. A monthly budget is very useful and with an effective financial plan in place, you can monitor and adjust your expenditures in a way that is best suited for you. With it, you will be able to live financially secure.
Your monthly budget should be set to a suitable amount for you. You need to consider the timeframe and the amount you want to have saved by the end of that timeframe. When setting your financial plans you need to consider and look at a few factors to determine if you set a realistic and efficient enough budget. The following are a few important steps on how to set that monthly budget.
Calculate your net monthly income
Start by calculating how much you usually end up with as your monthly net income. It is important to calculate and compare your income of the last 3 or more months to know if it has been consistent throughout. If it has not been consistent, you can take the least monthly income as your base or take an average. The net monthly income should be from all your income sources and should not include overtime, bonuses and non-recurring gains (incomes that are not expected every month).
Note down all your expenses
For you to be able to make a helpful record of the expenses, you should write them down on a monthly basis and cover the last 2 or more months. Some of the things that can help you while writing down the expenses include bank statements, receipts, pay stubs and bills. You should ensure that you have recorded all your debt payments, insurance payments, utilities, grocery bills and any other monthly expenses.
Remember that the monthly budget has to be accurate. That is why you should not forget to write down special expenses to. Special expenses include vacations, holiday/birthday gifts, repairs/replacements and so on. You can also define special expenses as the ones that do not take place every month but are normally expected and should be under their own monthly expense section.
Arrange your expenses and sum them up
At this point, you should group the expenses of every month under three main categories while still keeping them in their monthly order. The three categories are; the mandatory expenses, the incidental expenses and the special expenses. After grouping your expenses under those categories and without forgetting to separate them on a monthly basis, you can then add them up for easier comparisons. You can combine all the expenses according to their month and you will now have determined a net monthly expenditure.
Calculate the left over and make your plans
From the monthly net income, subtract your net monthly expenditure and find out if you have any savings left behind from each month. If there is, you are on a great start. Now you can check and look for any expenses that you can cut down from. You may want to be left with enough money for your plans but you can reduce the amount you are spending. You should also not forget to leave behind enough money for your special expenses especially if they are important. With the reduced budget, you will now be able to save enough money that can be put away in your savings. This budget you have set is a good start and tool that you can now start using. Try not to stray away from the budget you have set.
Follow the new budget and keep monitoring
Keep track of the newly set budget for about two months and notice if it has made a significant difference in your savings. If not, you will be able to make any necessary adjustments so that you end up with a sufficient monthly budget that can be followed honestly. You can start using an online spreadsheet for easier calculations and estimations. Let any extra money that you earn, such as a bonus, end up in your savings because the budget is now sufficient the way it is.