How to Make a Monthly Budget and Maintain It In Four Steps

how to make a monthly budget

If you often find yourself struggling with your finances, worried about money, and stressed about bills, the obvious solution is to make a monthly budget and stick to it.

But as nature would have it those who perpetually struggle with money are likely to be averse to adopting this habit–– and developing a new mindset about life and money through the deceptively simple tool of book keeping. That’s a big reason why they are struggling with their finances. It may be the biggest reason.

For the person who is not financially vigilant — who hasn’t developed their money consciousness — setting financial goals, planning a personal or household monthly budget, and keeping books regularly seems at once boring and terrifying.

Examining the numbers closely is staring the hydra square in the face. So for those who have never made a budget just getting started can feel daunting.

But one of the best reasons to make a monthly budget is actually the relief you get from worrying about money when you start taking control of it.

Although it’s tempting to keep only a vague idea of where your finances are at and that they’re generally okay, if you’re stressed about money this will only make you feel worse and leave you out of control of your own life.

There is great peace and strength that comes from knowing exactly where you stand to define your problems and your solutions clearly.

How to maintain a monthly budget in 4 steps: Surveil, Orient, Decide, Act

Getting Friendly With The Books

(Step 1: Surveil)

setting a monthly budget
To plan where you’re going next by setting a monthly budget, you need to know where you currently stand.

A small leak will sink a great ship.
-Benjamin Franklin, Poor Richard’s Almanack

Penny Pinchers – SPY Magazine once did an experiment and sent several of the world’s richest people checks for just 13 cents each to see if anybody would actually cash them. The only ones who did were a wealthy arms dealer– and Donald Trump.

One thing about people with a lot money is most of them are book keepers. They always know how much money they have, how much they owe, how much they are expecting to take in each month, and how much they are going to spend.

John D. Rockefeller, the 19th / 20th Century oil magnate was three times richer than Jeff Bezos — the richest man in the world today — after you adjust for inflation.

Maurice Clark, Rockefeller’s first partner had this to say about the man:

“[Rockefeller] was methodical to an extreme, careful as to details and exacting to a fraction. If there was a cent due us he wanted it. If there was a cent due a customer he wanted the customer to have it.”

That earned the young man quite a reputation in among Cleveland merchants. While still a teenager, Rockefeller starting shipping grain on Lake Erie and started dealing thousands of dollars worth of goods in no time.

The wealthy are always aware of what their books say, and they look at, update, and think about their books every day. If you want to learn how to make a monthly budget and stick to it every month, it begins with book keeping. The easiest way to keep books is to create a budget spreadsheet in excel or a similar app.

First list any money you owe in a column. Credit card and loan balances. Name each account in one column, and in the cell next to each account write the amount of the balance owed. Then skip a couple lines.

Next list any money you have in a column, checking accounts first, then savings accounts, paper assets like bonds and stocks, hard assets like gold and silver, and digital assets like cryptocurrency and smart contract tokens.

List the current balance next to each account or category.

If you run a business or are an independent contractor call or log into your bank’s website and set up a separate checking or savings account to set aside money to pay your taxes out of your receipts as they come in.

Do this first thing out of every receivable you get so you know how much money you’re really working with. There’s nothing certain, but death and taxes.

It’s only a few numbers, but they tell you where you stand financially. Congratulations! Now you know your net worth and you are a practicing book keeper.

Surveilling your finances and updating your books is a habit to establish. To establish a new habit you must have a burning desire to do it.

If you truly have a burning desire to establish a new habit then over the course of your day or week your thoughts will turn to it and you will be reminded of it.

And when you randomly remember your new habit you must keep it right away and with gusto, or make definite plans as to when you will do so.

Deciding on a monthly budget

(Step 2: Decide)

monthly budgeting to save for retirement
How much should you budget to save for retirement and emergencies each month? Financial advisors say not less than 20%.

“We must consult our means rather than our wishes.”
-George Washington

Now make another spreadsheet to describe your monthly cash flow: income and expenses. Start with your expenses. In the first column list them by name or category. In the next column list how much you spend for each expense each month.

If an expense varies by month, find a good average figure to use and overestimate it. If you know you’re overestimating expenses, and your budget is still solid, you can rest assured. You only want to be surprised by doing better than you projected, and not plan your budget to possibly fail by underestimating what you might spend.

In the third column from the left list the date for bills that are paid on the same day every month. Type in “MM/21” for bills due on the 21st each month. Type “MM/01” for bills due on the 1st, and so on.

Leave the cells in this column blank for expenses that accumulate throughout the month and aren’t a bill due on a particular date, like grocery spending and an allowance for eating out. (If you’re in stressful financial straits stop eating out altogether until your ship is sailing smoothly.)

How much should I save each month calculator

You don’t need a special online calculator to determine how much you should be saving every month. Get your phone out, tap in how much you make each month into the calculator app, and multiply it by 0.20. That’s how much you should save each month.

The average American household makes nearly $75,000 a month.

The average household also spends 90% of its pre-tax income and saves only 10% or less. How much should you be saving each month?

Many financial planners say you should save 20% of your income. More is fine. Less is not advised. The popular 50/30/20 rule for budgeting says you should spend no more than 50% of your income for essentials like food and rent/mortgage. Discretionary spending should stay at or under 30%, and you should save 20% of each check.

Getting friendly with the calendar

(Step 3: Orient)

how to make a monthly budget
Now make a financial calendar and use it to refine your budget. Mark off important dates for your budget on the calendar.

“Economy is idealism in its most practical form.” – Calvin Coolidge

The next step in making a monthly budget is getting friendly with your calendar. Use a calendar app, or buy one of those big paper desk calendars that you can write on, or a whiteboard calendar to put over your desk. Note which days your bills are due and the amount, and note which days your cash inflows come in if they are regular.

Pinpoint the day you’ll pay off your loans at the rate you’re chipping away at them. Decide if that’s soon enough for you or if you want to devote more of each month’s income toward getting out of debt sooner.

Your monthly budget will get back the money you go through each month servicing the interest on your debt so you can save more.

Now divide up the 20% of monthly savings into three categories: 1) Saving for the next year, 2) Saving for the next decade, 3) Saving for retirement.

Decide how much you want to save for vacations or holiday gift expenses over the next year. Use an envelop in a safe or a savings account specifically for this purpose.

You’ll also want to amass an emergency fund for the next decade. It should be at least three months’ of expenses. You can assume that you will cut out non-essentials if you have to go on a three month job hunt, but be realistic and conservative.

The emergency fund will also be a safety net in case of major unexpected costs like expensive car repairs or replacing big appliances. Just be sure to replenish it after these costs crop up as they inevitably will. And after you save up 3 months’ worth of expenses–– why not try going for 6 or 9 months’ worth?

At least half of what you save every month should go toward your eventual retirement. Since you’ll likely be holding this money for decades, it should not be stashed in a savings account where it’s not doing any work to earn interest for you and inflation will erode its value.

You can use a mutual fund or wealth management company of some kind, but more and more people are saving on the fees for a stronger portfolio by investing their own money in securities they know, understand, and have confidence in.

The free Robinhood app allows you to buy stocks with no commission fees. Binance is the world’s largest cryptocurrency exchange with 450+ active currency markets. There are a number of reputable precious metals dealers that charge very low fees over spot for gold and silver.

To invest seriously and intelligently, educate yourself and don’t put all your eggs in one basket. Spread your investments out among different asset classes and different securities within those classes. Here are a ton of investing ideas to get you started.

How to make a budget plan

(Step 4: Act)

There is a lot of information in this post, and it may seem like a lot to do, but in fact you can probably get a really strong handle on your situation and your future by taking just ten minutes to get started. What you will probably find is that it only takes a minute or two for the resistance and anxiety to evaporate once you start.

Spend ten minutes a day keeping your books. That’s all it takes to make some magic happen with your finances as long as you don’t skip it. Do it every day.

And you may find that shopping for securities is as fun and gratifying as shopping for junk that eats up your income every month instead of growing your wealth.

If you’re still dreading getting started, bribe yourself with a glass of wine, or a cup of coffee, or a bowl of popcorn for while you’re planning your new monthly budget.

Or invite a close friend or family member to do your budget with you. Make it fun. Put on some music. Whatever it takes.

Now that you’ve read this entire guide to making a monthly budget, don’t wait a minute longer than necessary to actually take action.

You’ve got just this one life and that’s all you get. Don’t waste it.

Featured image courtesy of Shutterstock.