Developing a monthly budget can help you get rid of debt and help boost your well-being. Having a ceiling on spending, however, requires a lot of work and self-discipline. You should collect reports for the past 3-12 months to develop a budget that is as accurate as possible. After analyzing these documents, determine your income and expenses. In expenses, be prepared to introduce actionable cuts that you will be able to comply with in order to make a difference to the overall state of your finances.
Steps
Method 1 of 4: Determine Revenue
Step 1. Calculate your monthly income
For some, it may be easier said than done.
- If you earn based on the amount of hours you work, multiply your hourly wages by the hourly workload you devote to your profession weekly. Don't have a steady job? Consider the minimum number of hours you work per week instead of the maximum. Multiply your approximate weekly pay by four, and you will understand how much you earn monthly.
- If you are earning a monthly salary, divide your net annual income by 12 - you will determine how much you earn approximately in a month.
- If you get paid every two weeks, calculate your income on two salaries, because that's the money that will go into you in a month. This is especially useful if your budget is tight, plus twice a year you will receive bonus payments to add to your savings.
- If you work occasionally and have irregular income, take an average of the money you have earned over the past 6-12 months. Use it to consider the budget for each month, otherwise choose the lowest monthly earnings in order to always evaluate the worst case.
- For example, if your monthly salary is 3,500 euros, this is also your income.
- Remember to recalculate this amount after tax. Just mark the figure of what you actually bring home.
Step 2. Consider the extra sources your income comes from
In addition to work, you may regularly receive money for other reasons, such as your ex-spouse's check.
For example, if you earn 200 euros a month from a second job, then your total income is 3500 + 200, or 3700 euros
Step 3. Do not calculate bonuses, overtime and non-recurring sources of income
If you can't count on receiving this money every single month, don't put it into your monthly budget.
The good news is that if you receive additional income, you can consider it as extras, which you can spend (or even better save) and that you had not previously calculated
Method 2 of 4: Determine the Outputs
Step 1. Calculate the total amount of monthly payments you need to get out of debt
Determine how much money you need to pay monthly: car loan, mortgage, rent, credit card, student loan, and any other form of debt. Give each figure separately, but also calculate the total to figure out how much you owe overall.
For example, your outgoings could be as follows: 300 euros for the car payments, 700 euros for the mortgage and 200 euros for credit card expenses, for a total of 1200 euros per month of expenses
Step 2. Keep track of monthly insurance payments
This amount usually includes everything you spend each month on rent, home, car, other motorized vehicle, health and life insurance policies.
For example, your insurance costs could include $ 100 a month for a car and $ 200 a month for health insurance or life insurance. That's another 300 euros a month of releases
Step 3. Average the bills you receive each month
These accounts include the monthly services you pay to utility companies, so they generally include bills for water, electricity, gas, telephone, internet, television and satellite subscription. Collect the receipts and bills paid in the last year in order to estimate the monthly average for each individual expense, then add up the results.
For example, they could amount to 100 euros a month for water and 200 euros for electricity, for a total of another 300 euros in monthly expenses
Step 4. Establish the average of the amount of money that goes away to do the shopping
Take a look at the receipts from the last few months to determine how much you usually spend every 30 days.
For example, your average monthly grocery shopping could be around $ 1,000
Step 5. Look at the latest cash withdrawals you made
Review your ATM receipts and statements to determine how much you withdraw from your account each month; make a rough calculation. Next, determine how much was spent on necessity and how much on impulsive desires.
- If you have kept your receipts from the last month, analyze them and calculate how much you have spent on necessary items (gasoline, food, etc.). Subtract this amount from the total monthly withdrawal in order to understand how much you spent instead on things you just wanted: a new video game, a designer bag, etc.
- If you haven't kept your receipts, think about it for a moment to calculate an accurate estimate by relying on your memory.
- For example, if you withdraw 500 euros from the ATM every month, and spend 100 on grocery shopping, take that 100 out of the 500 because you have already counted the money for food expenses.
Step 6. Also enter the special expenses in the calculation
These are those releases that don't happen every month, but that come up often enough that you have to predict them. For example, gifts for parties or birthdays, holidays, repairs or replacements that you plan to do in the near future. Determine how many special releases you plan each month from January to December.
For example, you could spend 100 euros a month on car repairs and checks
Method 3 of 4: Put it Black on White
Step 1. Decide how to keep track of your budget
You can use pen and paper, a very common software that has spreadsheets or a specialized program to calculate the spending ceiling. Software can make it easier to calculate and alter as needed, but you may also find it convenient to write your budget on a diary and keep it with your checkbook or credit card so it's a constant reminder.
- One of the best things about using software - such as a spreadsheet - to track your budget is that you can play "What if …". In other words, you can see what would happen to your budget if the monthly mortgage increased by $ 50 per month, simply by typing the new value in the "mortgage" box. The software recalculates everything immediately and you get an idea of how much of the variation in your spending.
- Some banks offer a sheet template that you can download for free from their site.
Step 2. Plan your budget
Separate the spending ceiling into two main parts: income and expenses. Complete each section with the information obtained from the analysis made previously (as we have explained to you), by entering a different item for each individual source of income or expense.
- Calculate two totals for the revenue section. As for the first, add all the earnings you earn each month. For the second, enter everything, including the money you have in a savings account.
- Calculate three totals for the expense section. For the former, add all fixed expenses, including debt repayment. For the second, enter payments that vary from month to month. For the third, calculate the outputs in their entirety.
- For the second, add variable or non-essential expenses over which you have some control, such as eating out or entertainment.
- For the third, calculate the total expenses by adding the other two categories.
Step 3. Subtract the total expenses from the sum of the calculated income
In order to save money, you need to get a positive difference. To be even, the two sums must balance each other.
For example, if your total expenses are € 2,900 per month and your salary is € 3,700, then the difference is € 800
Step 4. Make changes
If you subtract expenses from income and the difference is negative, review the expenses that you can alter and make changes. Unnecessary things, like games and clothes, are the ones you can give up most easily. Keep intervening until you reach a sum that allows you to break even or save.
The ideal would be that the income exceeds the expenditure, and not that there is a tie. There are always expenses that you did not consider, it is an immutable law of the universe
Step 5. Never allow expenses to exceed the sum of income
In general, spending more than you earn will only cause your savings to decrease. You can do this once in a while if necessary, but it shouldn't become a monthly habit. In any case, the total income also includes savings, so if you exceed it, you will go into debt.
Step 6. Keep a hard copy of your budget
Keep it together with your checkbook or in a special folder dedicated to calculating the spending ceiling. It is useful to have an electronic copy, but the one written on a paper will remain intact even if something happens to your computer and you lose all your files.
Method 4 of 4: Making Adjustments
Step 1. Review your budget regularly
As you keep track of your budget over the months, you should also review it from time to time. Try to diligently track your entries and exits for at least 30-60 days (or longer, if there are large variations from month to month), so you can see all changes and make adjustments accurately. Compare the real expense with the budgeted one. Look for any expenses that are increasing from month to month, and if you can try to curb these increases.
Step 2. Save where you can
Analyze your expenses and look for areas where you can make cuts. Maybe you didn't realize how much you spent on eating out or having fun. Look for major expenses that you think are greater than they should be (for example, if you spend what you spend on food on TV and mobile phone subscriptions). Think of ways to cut these expenses and save more money over time.
Step 3. Adjust your budget for savings or contingencies
There will come a point where you need to save for a big purchase, or make changes to account for an unexpected event. When this happens, start from scratch and look for ways to change the new expenses or to calculate the necessary amount of money to save in your budget.
Step 4. Be realistic
Making changes is important for budgeting, but you can only alter it up to a point. As much as you intend to spend on basic necessities alone, the prices of many of these goods and services, such as gas and food, are subject to fluctuations that you cannot predict as you calculate the cap.
