MAKING A PERSONAL BUDGET HOW TO

Use an Envelope SystemĮven after you have your monthly budget categories outlined, it can be difficult to stick to them and always avoid overspending. In yet another example of a proportional budgeting system, users of the 70/20/10 system cut their spending on wants and needs to 70% of their monthly budget, use 20% toward debt and personal savings, and a remaining 10% for long-term investments in things like retirement, college, and a new home. However, one drawback of the 50/30/20 rule is that some may struggle to clearly distinguish between some expenditures that are “wants” and “needs.” To simplify this, some budgeters instead use an 80/20 rule, where 80% is allocated toward both of these categories while the remainder is used for debt and savings.

20% on Savings and Debt Repayment: The remaining fifth of your monthly budget can then be allotted to repaying any outstanding debts (car payments, student loans, etc.) and to building up your savings-whether that’s a college savings or retirement plan, savings for a new home, or an emergency fund.

This should account for everything from nights on the town and takeout, to hobbies, leisure travel, and subscriptions.

30% on Wants: The next 30% of your spending goes toward your desires, the things that keep you happy.

50% on Needs: Allocate half of your monthly after-tax income to your needs-things like rent or mortgage payments, groceries, and utilities.

Using this rule, you can aim to spend your money in the following fashion: The 50/30/20 rule is one of the most common-and straightforward-systems for monthly budgeting.

MAKING A PERSONAL BUDGET HOW TO

If you’re unsure of how to initially structure your budget in a way that leads to savings, some common budgeting systems might come in handy. To help you do just that, use these techniques to help allocate your budget toward the right mixture of expenses. Once you have more finalized income and expense numbers to work with, it’s time to work toward a sustainable plan that not only accounts for your spending but makes sure you’re doing that spending in the right places and on the right things for you. Monthly Budgeting Techniques and Goal-SettingĮven if your expenses are lower than your income, you’ll likely want to make some adjustments, too. If your budgeted expenses are greater than your income, then you’ll need to identify areas where you can cut spending. Make Adjustments: Subtract your expenses from your income and see whether you are in the positive or negative.For categories of spending that change over time, examine recent statements from your bank or credit card provider to estimate how much you tend to spend in these areas each month. As you’re tallying these expenses, make note of which ones might fluctuate from month to month, as well as which ones are fixed.

Tally and Understand Your Monthly Expenses: Write down all of your expected monthly expenses, including your mortgage or rent, groceries, utilities, transportation, debts, and entertainment.

Also be sure to include other sources of income like Social Security payments. If your income varies from month to month, use an average based on the last year or start with your low-earning month of that year as a baseline.

Calculate Your Monthly Income: Start with your monthly after-tax income or “take-home” pay as your spending limit for each month.

Follow these simple steps to get the ball rolling: To craft your monthly budget, start with the budgeting basics.

Making a personal budget