In order to maximize your long-term financial health, it is paramount to set up a monthly budget for all of your expenses. If you don’t create a monthly budget and make a concerted effort to stick to it, it can be so easy to be completely unaware of your true financial status. You may not be aware of your spending habits, and therefore overspend each month. This could spiral into so many more issues, such as high credit card debt and a lack of sufficient savings for a down payment on a major purchase (like a car).
Financial wellness is an important component of your overall wellness, as financial disorder can cause tremendous stress and anxiety.
That said, there is no better time than now to put together a monthly budget that fits your lifestyle. In my experience as the CEO and founder of CMA Exam Academy (a Certified Management Accountant exam review program), I have discovered many helpful tips on setting and sticking to a monthly budget. Below are 5 tips for setting and sticking to a monthly budget:
1. Use a Cloud-Based Spreadsheet Platform to List Out Essential Expenses
The first step to take in setting a strict monthly budget is writing down every single one of your recurring essential expenses. These include the cost of your monthly rent or mortgage, your weekly grocery shopping bill, utilities, medications, your internet and phone connection, auto and health insurance, etc. Yes, you may be thinking that you could just make a mental list of all of the expenses and then select a general spending threshold to not go over each month, but it can be so easy to forget smaller recurring costs (like the cost of a prescription). Taking the time to list out every single expense will help you select the best monthly budget possible.
Now, it will be wise to use a cloud-based spreadsheet platform (like Google Sheets) to list out the expenses, rather than a plain Word Document or Excel spreadsheet. The reason for this is that if you ever need to add on a new monthly expense or remove one, you can easily do that on your phone while on the go. Or, if you spend more on groceries or another monthly expense, you can easily adjust that month’s budget on your phone.
2. Check Your Last Bank Statement for Exact Amounts of Essential Costs
Trust me, you don’t want to just do a guesstimate of the cost of each essential expense — this is because even if there is just a few dollars’ difference between an expense’s exact amount and the guesstimate, if this is the case for most or all of your essential expenses, it can lead to a huge discrepancy between what you think your essential spending threshold should be and how much you actually spend each month. So to get exact expense amounts, look through every single line item in last month’s bank statement(s).
This can help you decide to make changes that improve your spending right off the bat. For example, you may end up realizing that you have been paying a lot more for insurance than you thought you were, so you can see about switching to a cheaper plan.
3. Add in All of Your Usual Recurring Non-Essential Expenses
After listing out your essential monthly costs, it’s time to add in all the recurring expenses that are not critical. These include the cost of monthly subscription boxes, a gym membership, meal delivery services, and subscriptions for online news publications. Again, check every single line in your last bank statement so that you don’t accidentally leave out recurring non-essential expenses you forgot about. You may end up discovering that you have been paying for mobile apps you no longer use, which you can cancel right away. Or, you may realize that you want to cancel another nonessential recurring expense in order to put more money in savings.
4. Split Up Your Leftover Monthly Income
After you add up all of the costs of the essential and nonessential recurring expenses, it’s time to divide the leftover income that you make each month. To do this, take a long look at your current lifestyle and the kind of financial future you hope to have. Set a strict portion of your leftover monthly income to go into your savings account, retirement plan, 401K, etc. Being proactive in prioritizing savings now will help you spend much less frivolously in the future — it will be so much easier to make saving money an ingrained habit.
Finally, set a spending threshold for entertainment like going out to dinner, the movies, concerts, etc. Then, if you have any leftover monthly income, it would be wise to add it to your savings or an emergency fund. A typical emergency fund should have 6-12 months of essential living expenses (rent, utilities, groceries, etc.) in the event of an unforeseen situation that affects your monthly income, such as being laid off.
5. Every Single Time You Spend Money, Log it and Write it Down
After you set your budget in the spreadsheet, add on a new page for you to record every time you spend money on anything. Again, this will be easy to do if you just use a cloud-based spreadsheet app on your phone that you can update while on the go. Don’t forget to include all of the small expenses, such as a new app purchase or a random time you bought a latte from a local coffee shop. Recording every time you spend money will help you be a lot more cognizant of how much money you are actually spending each month. It may also help you decide to be more thrifty and choose to spend less in areas that don’t amplify your financial future.
The Bottom Line
Setting and abiding to a strict budget is a surefire way to improve your current and future financial standing. In order to do just that, use a cloud-based spreadsheet platform and check your last month’s bank statement to list out both your essential and nonessential recurring expenses. Also, split up your remaining monthly income by directing a set amount of funds into your savings, retirement plan, entertainment, and an emergency fund. Finally, make sure to record every time you spend money on anything. Following these budgeting tips will help you maximize your overall financial health.