Why you need a personal monthly budget
First steps for a personal monthly budget
Translating your understanding into monthly benchmarks
First of all, it’s important to bring all earners in your household together for the budgeting process. You may be saving together for shared future expenses, and you could decide to split certain costs proportionally based on your shared and personal saving goals, lifestyle choices and income streams.
If you have an income that can change from one month to the next, assume that you’re budgeting for a low-earning month. This is the safest approach.
Think about your long-term goal’s price tag and its timeline. Divide the total amount you want to save or invest - or the amount of debt you want to clear out - by the number of months between then and now. That’s how much you have to save per month. For goals that are very far head, be sure to factor compounding interest into your calculations.
Next, add your monthly saving goal to your fixed, necessary expenses. Then, include estimates for the next month for your variable, necessary expenses. Do you still have money left over and a comfortable cushion? Add your fixed and flexible discretionary spending back in.
If you’re still comfortably far away from zero, label your leftover funds as a miscellaneous category. This will give you a little padding in case some of your estimates were off or you wind up with small, unanticipated expenses.
If the first draft of your budget winds up in the red, start trimming discretionary expenses, beginning with the flexible ones. Maybe you budgeted more than you really need for eating out or entertainment, and with a little self-discipline, you can reel that in. You can cut fixed discretionary expenses, too.
Adjust flexible necessary expenses next. Maybe you can keep the thermostat a little lower or try to save on groceries by clipping coupons and going to a bargain store. Fixed necessary expenses, like rent, will be hard to change from one month to the next, though you may be able to look for more affordable housing in the future.
If it’s still impossible to make the numbers add up, you may need to adjust your long-term goals.
It can take some tweaking and multiple drafts, but once you have a budget established, it will be a weight off your mind.
Make sure, however, that you don’t just view your leftover miscellaneous funds as part of your discretionary budget. You could be tempted to dip into it for frivolous purchases. Periodically, use it to add to your emergency fund or retirement savings.
Once you’ve established your monthly budget, push yourself to stick to it by keeping your long-term goals in mind if you’re tempted to overspend. Take out a limited amount of cash for certain outings where you’re likely to spend money impulsively.
Financial Tools from Trustmark can help you understand your spending habits, produce a realistic budget and track your spending by category over time. This online service will help you refine your personal monthly budget as circumstances change. Find out more about Financial Tools here.