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How to Make a Monthly Budget

March 25, 2021 · 5 minute read

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How to Make a Monthly Budget

Some good news about budgeting: According to a 2020 Debt.com survey, as many as 80 percent of Americans are now doing some form of budgeting. The top reasons for using a budget, according to the survey, include increasing wealth and savings and managing debt.

While not everyone loves the idea of budgeting, taking a moment to assess and prioritize your spending can yield some real rewards. Even a basic monthly budget can help you reach your financial goals, whether it’s to have a financial cushion, put a downpayment on a new home, go on your dream vacation, or all of the above.

The most common reason cited for not budgeting in Debt.com’s survey was making too little money. But the truth is that you don’t have to make a lot to benefit from having a budget. Indeed, budgeting can be particularly helpful when money is tight.

Whether you’re brand new to budgeting or looking to improve your budgeting skills, read on. Below are some simple steps that can help you keep better tabs on your cash flow and improve your financial life.

Gathering All of Your Financial Information

While estimating your income and monthly costs can work in a pinch, to make your budget as complete (and accurate) as possible, you’ll want to start by gathering up at least three months worth of financial documents and receipts.

Here are some documents that may be helpful:

•   Pay stubs
•   Bank statements
•   Credit card statements
•   Rent/Mortgage bill
•   HOA
•   Electricity bill
•   Water bill
•   Internet bill
•   Cable bill
•   Childcare/School Tuition statements
•   Monthly public transportation passes
•   Recurring healthcare costs like deductibles or prescriptions
•   Student loan statements
•   Insurance statements

Figuring Out Your Monthly Take-Home Income

Although you may be able to rattle off your annual income without thinking, when creating a budget you’ll want to look more closely at your pay stub to determine your take-home pay. That’s how much is left after all of the deductions (such as federal, state, and local taxes, retirement savings, and insurance) are taken out.

If you’re self-employed, you’ll need to subtract your self-employment income tax before calculating your net monthly income.

Determining your take-home pay is important because if you use your annual income to make your budget, you might end up thinking that you have more money available to you every month than actually shows up in your checking account.

If you’re budgeting with another person, you’ll also want to tally up that person’s take-home pay as well. It’s a good idea to also include any additional household income, such as that from investments or social security.
All together, these will give you a good idea of how much actual cash you have to budget with each month.

Tallying Up Monthly Expenses

Once you’ve nailed down how much money you’re bringing in each month, it’s time to look at how much money you’re sending out into the world each month. This is where all the paperwork you gathered can really come in handy.

A simple way to start is to write down how much you’re paying for all your fixed (or recurring) monthly bills, such as rent/mortgage, car payments, insurance, health care expenses, utilities, subscriptions.

Once you’ve got your regular bills accounted for, you can look at variable expenses, such as groceries, entertainment, and other discretionary expenses. With variable expenses, it’s helpful to look back at your bank statement, as well as receipts from the previous few weeks or months, and calculate an average.

If you tend not to save receipts, it can be useful to actually track your spending (by carrying a notebook, using a app, or collecting receipts and recording them later) for a week or more in order to better assess your daily spending.

Below are some sample budget categories and expenses that you may want to include:

Housing
•   Rent
•   Utilities
•   HOA
•   Maintenance costs
•   Home/renter’s insurance

Transportation
•   Rent
•   Utilities
•   HOA
•   Maintenance costs
•   Home/renter’s insurance

Children
•   Childcare expenses
•   After-school care costs
•   Tuition
•   Tutoring
•   Babysitting

Education
•   Tuition
•   Books
•   Student loans
•   Student fees

Food
•   Groceries
•   Take-out
•   Eating out

Financial
•   Bank fees
•   Service fees
•   Credit card payments
•   Life insurance
•   Disability insurance
•   Retirement fund
•   Investments
•   Emergency fund

Healthcare
•   Doctor appointment co-pays
•   Prescription costs
•   Over-the-counter medication costs

Entertainment
•   Movie tickets
•   Special events
•   Concerts
•   Streaming media services
•   Books
•   Nonbusiness travel

Pets
•   Pet insurance
•   Food and treats
•   Flea and tick preventative
•   Medications
•   Vet bills

Shopping/Personal Care
•   Clothing
•   Shoes
•   Accessories
•   Toiletries/Cosmetics
•   Haircuts/styling
•   Shaves/Manicures
•   Gym membership

When it comes to expenses that only occur in certain months, such as tuition for summer camp, you can divide the total by 12 in order to figure out how much you should be saving each month to cover these seasonal costs.

Once you have a list of all your monthly expenses, you may be alerted to trends you might not have noticed before (like $75 a month on morning coffees).

You’ll also be able to add it all up to see what your overall average monthly spending is. Ideally, this number is less than the amount of take-home pay you calculated above.

Planning and Creating a Budget

Now that you’ve got a grip on how much money you have coming in, and how much is going out, it’s time to actually create a plan for how you want to spend your money–in other words a budget–rather than spending haphazardly.

You can create a budget using pen and paper or a spreadsheet on your computer. There are also a number of budgeting apps, such as SoFi Relay, that can simplify the process.

There are several different ways to approach spending targets and savings goals in your budget.

One commonly recommended guideline it the 50/20/30 budget, which breaks up your spending and saving like this:

•  50 percent on “needs” or essential expenses (such as housing, utilities, auto payments, insurance, repairs, healthcare, childcare, minimum payments on debts, and education).
•  30 percent on “wants” or discretionary expenses (e.g., shopping, entertainment, personal care, travel).
•  20 percent towards savings (such as an emergency fund, paying more than the minimum on debts, retirement, and other savings).

These percentages are guidelines, however, and you may decide to re-jigger them based on your financial situation, current expenses, and goals.

If the cost of housing is high in your area, for example, you may need to allot more to the “needs” bucket. Or, if you have a big expense or a trip you want to take in six months, you may want to bump up savings, at least temporarily.

If you find that your spending is currently higher than your income, or doesn’t allow for monthly savings or debt reduction, you may need to find places where you can cut back.

It’s often simplest to do this in the “wants” category. For example, you might decide you can cook more and eat out less often, ditch that pricy cable bill, use the library instead of buying digital and audio books, or cut back on clothing purchases.

Once you’ve set up your spending and saving targets, you’ll want to track your progress, either by manually tracking your spending or using an app. Along the way, you may find that you have to adjust your spending to stay better aligned with your budget, or you might find that you need to adjust your budget to make it work better for you.

The Takeaway

A budget can help you achieve your financial goals, whether it’s knocking down debt, saving up for something fun, or funding your retirement.

While the process may sound intimidating, budgeting is really just a matter of figuring out what your current income and expenses are, seeing how they line up (or don’t), and then deciding how you may want to shift your spending in order to reach your goals.

It can also be helpful to remember that even if you have a budget, it will only be useful if you periodically track and update it to reflect any changes in your income, expenses, or financial goals.

If you need help tracking your spending, a SoFi Money® cash management account might be a great choice for you. With SoFi Money, you can easily see your weekly spending (and make sure you’re on track with your budget) in your dashboard in the app.

Ready to take your budget to the next level? Find out more about how SoFi Money can help you track your spending and budget effectively.


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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