Ever wondered how to set your monthly budget or how other people do it? I get it, I’m nosey too, and even though I’ve been budgeting for around 4 years at this point, I’m always looking for ways to improve. Seeing how other people budget is how I learned how to create mine in the first place!
I’ll take you through a breakdown of my expenses (yours will be different depending on your situation), the goal of budgeting (what we want it to look like), how to prioritize what you budget for, and keeping track of your progress. Let’s gooooo!! 🏃♀️💨
My Monthly Budget Breakdown
My budget can be broken up into 4 categories: income, expenses, debt, and savings. I’ll go over each one individually to help you get a detailed idea of each one. In a monthly budget, I like to start with income. From there, we can evaluate what your expenses are, how much you can put toward paying off debt, and how much you can save!
Income
Most people (myself included) get paid 2-3 times per month. If you’re salaried, it makes it a lot easier to budget since you know how much comes in every paycheck. If you’re paid hourly or have variable income, it gets a bit trickier. My recommendation is to budget for the very minimum you have come in on a monthly basis, that way you’re not overextended if you don’t make as much as you thought you would.
For me, my pay is consistent so it doesn’t really change month to month. When I was babysitting on the side, I would have extra cash that I would add to the income section on my budget. This year, I added my tax returns to my income so I could properly calculate what I spent it on (I used it to pay off some debt).
Expenses
There are two types of expenses: fixed and variable. Fixed expenses include things like your mortgage/rent, car insurance, internet & phone, and subscriptions. Variable expenses are things like groceries, gas, certain utilities, and random expenses like a vet bill or car repair.
Fixed expenses are easy to budget for because you know exactly how much you have to pay each month. Variable expenses can be a bit trickier because you may pay more for groceries in June than July, for example. For these expenses, I give myself an estimated limit based on past experience. I typically spend around $300 for groceries, so that’s what I budget for.
Not everyone’s expenses will look the same, so the way you allocate your money will look different. If you have 5 kids, you’ll be spending a lot more on groceries than me. Not everyone even has the same expenses. Some drive paid off cars and don’t have to deal with a car payment. Some have to budget for child care or health related expenses. Do a deep dive into your spending to figure what expenses are necessary and must be included in your budget.
Debt
Whether it’s student loans, car loans, credit card debt, personal loans, or money owed to your mom, it’s important to budget for these debt payments. Whatever the minimum payments are, they would be considered fixed expenses. So if your car payment is $250 per month, that’s a fixed expense.
However, we don’t just make minimum payments over here. We’re getting our asses out of debt as quickly as possible. That’s why we make additional payments on our debt. How much extra you throw at your debt depends on how much you can afford. Even if you can spare $50 or $100 more per month, it gets you out of debt that much sooner.
But I’m guessing you can probably spare more than that. Don’t hate me, but you can do one of two things (or even 2 of 2 things if you’re up for it). The first is to cut expenses so you have more money to throw at your debt. The second is to make more money. A combination of these two is lethal to your debt. Personally, I cut back on a few things to give me more money to work with. I didn’t completely cut out all the fun, but definitely have limited it. And it’s only temporary, too.
Savings
Do you have an emergency fund in case sh*t hits the fan? If not, and statistically you probably don’t, you need one, like, immediately. Almost 30% of Americans have less than $1,000 in savings. I would prioritize building this fund before really buckling down and throwing all your extra money toward debt. This way, if anything happens, you won’t go into more debt while trying to pay off what you already owe.
In my monthly budget, I set aside money for my savings goal. I’m trying to build up a $10,000 emergency fund. I could have done this in 10 months if I saved $1k per month, but I didn’t have that kind of wiggle room. I started out just throwing a few hundred a month into my high yield savings account. Then it became $250 with every paycheck. Once I paid off my first debt, I increased the amount to $500 per paycheck.
I’m not currently investing as I’m holding off until my emergency fund is fully funded and my debt is paid off, but if you are, this is also the section you’d want to track that. Whether you have a 401k through your job, an IRA, brokerage, 529 plan, etc. – include those amounts in your budget.
Monthly Budget Goals
My goal is to have my income minus everything equal 0. This is known as zero-based budgeting. When all your expenses and savings add up to what you bring in, you know that your money is all accounted for. If your spending is more than your income, you need to figure out where you’re overspending and cut back. If you have more money left over after accounting for all your expenses, figure out where you can be putting that money so it’ll best serve you.
Extra money can go towards debt, saving, investing, or if you’re covered in all those areas, a little extra fun. Make sure not to overspend on your wants, however. You may have heard of the 50/30/20 rule, which is a good guideline for budgeting.
The goal is to spend about 50% of your income on needs, 30% on wants, and 20% on saving/investing. Now, this is a very general breakdown of how you should allocate your money and I don’t think everyone’s going to fall into these exact ratios. Someone like me who’s heavily paying down debt will have a larger percent going to needs and less going to wants. It’s important to find what works for you.
Prioritizing What Goes In Your Monthly Budget
As I mentioned earlier, everyone’s going to have different expenses they need to budget for. This section is about knowing what to prioritize and add to your own budget. The best place to start is your needs. Think about what’s essential to your living. Housing, food, transportation. You need these things just to survive. Other essentials include health insurance and taking care of any pets or kids you may have.
Debts are also important to pay off because once you’re debt free, you get to keep more of your money and use it for things you actually want. After prioritizing the minimum payments, see how much extra you can put towards paying those debts down. Saving and investing are also two big priorities you should budget for, even though they don’t sound super exciting.
Anything left over after budgeting for the essentials can be used how you’d like. You can allocate some money for going out to dinner, buying clothes, saving for a vacation – all the things that are nice to have but that shouldn’t be put over our needs.
In the case of random, one-time expenses, it can be hard to budget. That’s why we have things like emergency funds and sinking funds. You can pull money from these accounts when something goes wrong, like a flat tire, or for a specific planned expense, like Christmas presents 🎄! A little bit of planning ahead will help take the pressure off your bank account when things get expensive.
If you’re not exactly sure what to include in your budget, the Budgeting for Beginner’s Guide is a great place to start. It’s also a good idea to ponder your financial priorities. What’s important enough for you to spend money on? If you had to choose between going out to dinner or going thrifting, what would you pick? What about between saving and paying off debt? Your priorities determine where your money goes.
Tracking Your Progress
Keeping tabs on your progress not only shows you how far you’ve come, but can also help you keep an eye on the future and stay motivated. I like to do this with an overview tab in my budget spreadsheet, this way I can keep everything together.
I track my savings goals, along with my debt payoff. This has been so helpful in seeing how much my efforts have been paying off. Since January, I’ve paid off almost $9,000 in debt and saved over $6,000. Seeing these numbers has been highly motivating for me.
I’ll also use this dashboard to track sinking funds (these are funds where you save for something specific like a house or vacation) and investments once I start those. What will you track on your progress dashboard? Let me know below! 😄