Ah, the ever-mysterious world of personal finance, full of scary questions and obtuse money-saving tactics. Despite what you may hear online or what the next big finance guru is trying to sell you, it’s really not that complicated, but it is key to your quality of life.
Effective monthly budgeting comes down to two things — how much cash is going in and how much is going out, referred to as “inflows” and “outflows,” respectively. The goal of effective monthly budgeting is to not only balance the two but to do so in a way that grows your savings over time.
In other words, in a way that keeps the amount of cash you have coming in higher than that which is going out.
Luckily, you can take advantage of tools that take some pressure off your monthly budgeting such as automated budgeting apps, spreadsheets, monthly bill roll-overs, and, if you’re falling behind, your insurance provider’s grace period for paying car insurance.
Let’s dive deeper into four tips for effective monthly budgeting.
#1 – Calculate How Much Money You Make Each Month
It sounds super simple, but you’d be surprised at how many people neglect to do this simple step. Before you can start keeping track of expenditures, you need to know exactly how much money you’re working with.
Start with a pen and pad or use your notes app on your phone. Write down your source or sources of income and exactly how much money they bring in each month (your inflows).
Don’t forget to account for taxes. Calculating monthly income is especially important for young adults just getting started with finances.
#2 – Separate Necessary Spending from Leisurely
The next thing you should do is determine your financial priorities. What must you pay for each month and what do you usually spend on for pleasure? Which outflows are essential and which aren’t? Write these categories down as well and number them in order of importance.
Some examples of necessary spending include the phone bill, your auto insurance premium, rent, and groceries (not restaurant visits). Examples of leisurely spending may include your Netflix subscription, your weekend activities, and how much coffee you buy daily.
#3 – Download a Budgeting App
This is one of the best things you can do to help you budget effectively in the 21st century, and there are lots of budgeting apps you can pick from.
These apps can be as simple as a digital checkbook and as complicated as a mobile ledger that keeps track of bills and subscriptions. Whichever you feel best suits your spending and budgeting style is what you should try out first.
Some popular budgeting apps today include:
Test out each one. Follow the tutorials and read the documentation. A little extra effort goes a very long way in the world of monthly budgeting, and taking initiative will simplify your budgeting life.
#4 – Create a Spreadsheet for Expenditure Tracking
If mobile phones or apps aren’t your things, you can take an even simpler route and create a spreadsheet on Microsoft Excel or Google Spreadsheets. We remember things even better when we write them down. The same principle applies to budgeting.
Create two axes: the day of the week on the x-axis and the spending category on the y-axis. Label the month at the top in a cell of its own as well as each calendar day of the week. Count each transaction on the day it was processed. Your final product should look something like this:
Keeping track of your expenditures this way will give you a good visual idea of how much you spend each week, on what, and on which day of the week per month. It’ll also get you in the habit of properly analyzing your bank statements to identify spending patterns.
To do this, you want to keep track of every receipt you receive throughout your day, both physical and digital.
Effective Monthly Budgeting Builds Healthy Habits
When you take control of your budgeting, you take control of your finances. Managing your spending is a learned skill that takes time but reaps long-term rewards that can spill over into other areas of your life.
By having effective budgeting habits, you’ll develop discipline, bigger-picture thinking, and an ultimately healthier financial future.