“Budget” isn’t anyone’s favorite word, and understandably so. Talking about finances can be stressful, and even the idea of sitting down to make a budget can be an intimidating prospect.
Know your income
In order to know how much you can spend per month, you have to know how much you make. Check your paystub or direct deposit to see how much you’re paid per month. Be sure to add any steady income from a side hustle or from investments (i.e., interest from a CD). If you’re making a joint budget with a spouse or partner, be sure you’ve included their income. This number represents the money you can rely on to come in each month.
Estimate your monthly spending habits
This can be the trickiest part of the process, but it is essential. Use your bank statements and/or credit card statements to see how much money you spend per month and note where it goes. While some items like rent or student loan payments will generally be set amounts, other expenditures are more fluid, like dining out or buying clothes. For those less predictable categories, go through a few months of statements and find the average amounts you spend, which you can use in your forming budget. Make sure to include any ongoing subscriptions and routine payments you know you’ll be making, like cell phone provider and water bills. At the end of this process, you should have a second number that represents roughly how much you spend per month.
Prioritize your spend
Ideally, that second number is less than the first. If it isn’t, or if it’s the same, it is likely time to examine your spending patterns and eliminate items that aren’t necessities. For instance, you may realize that you’ve been spending more than you think on eating out, or maybe you forgot how many streaming subscriptions you have. Cutting back on these items will allow you to bank that money toward potential emergencies, or even a big-ticket item you want to purchase but can’t yet afford.
Making and sticking to a monthly budget can be life-changing. Apps such as Mint or Goodbudget help you understand and manage your income. A little saved each month can add up quickly.