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How to Budget Monthly Expenses – 6 Simple Steps

Managing money is not easy. That’s why people take help from the expert, read blogs on financial independence, read money management books to get an idea of how to manage and what to do to keep your money safe.

When you try to get your finances in order, creating a budget is important, and it is the right way to do it.

There are numerous reasons why budgeting help keeping your finances on the right track and fulfilling your financial goals.

And when done correctly, it can help you save more, and bring a financial stability.

People usually create a budget plan, create a budget sheet for monthly expenses and set everything in order, but they fail to achieve their goals because they can’t stick to the budget.

It is difficult and can be challenging. If you are a beginner, you would need to take baby steps in mastering your budget plan.

Let’s first learn

What is a monthly budget?

A budget is an important part of financial planning. It is a planning to ensure that the financial resources are used in the most effective way. It lets you figure out how much to save, how much to spend and where to spend on monthly expenses.

A budget is required everywhere, in family household, company, wedding, and so on.

Now, we will discuss how to set a budget.

how to budget monthly expenses

How to budget monthly expenses – 6 Simple steps

Picking a budgeting method and stick to it

There are a lot of different budgeting methods that people use for their financial planning. Some prefer to create a budget excel sheet, some maintain a budget diary, whereas some feel budget apps are the best and easier to track.

Stick to one method that suits you well. The most common budgeting method that everyone talks about is the 50/30/20 rule.

It defines that 50% of your income should go to the living expenses, 30% to flexible spending and the rest 20% must go to your savings.

Different names have been given to the budgeting methods, however, the purpose remains the same ‘to track your spendings and to increase your savings.’

Whichever method you choose, there is no right or wrong to it. Many don’t even follow a budgeting method, they simply note down their monthly expenses, miscellaneous expenses, track their money and automate their savings.

It’s not how you do the budget, it’s about keeping a practice and having the right attitude towards budgeting.

Set your financial goals

Setting a financial goal should be the first step to reach the goal. Have a realistic goal that can be achieved. You don’t want to aim so high that is impossible to reach. Be specific about your financial goals.

For example, you are now 26 years old; you wish to buy a house after 5 years. Your goal is to buy a house after five years and to achieve this goal, a certain financial plan is required. Once your goal is clear, planning will be much easier.

Keep in mind your current financial condition. Once you set a financial goal in mind, you will always feel motivated to work harder. To achieve your goal, you wouldn’t mind to strictly stick to your monthly budget to save more.

To avoid feeling stressed, try to set several small financial goals that are easy to achieve and they will boost your confidence, too.

For example, to buy a house, you have set a financial goal of accumulating 1 crore INR in six years. The money is huge and to save this much amount of money you will have to sacrifice many things.

Think of all the places from where you can earn more and save more. After a period, you will feel the financial pressure.

Hence, start having small goals to reach the bigger one.

First, set a goal of achieving 10 Lakh in 6 months. You can plan your money sources accordingly.

Once you have achieved 10 Lakh, the next target for another 20 Lakh.

how to budget your monthly expenses

Add up your necessary expenses

When you do a budget for monthly expenses, the first step is to make a list of all your regular expenses, such as utility bills, rent, groceries, EMIs, and so on.

Necessary living expenses are the ‘need’ for which you pay every month. While budgeting, calculate how much you are spending on your living expenses.

You can hardly cut down your living expenses as these are your needs. You can certainly low down your standard of living to save more.

For example, if you live in a 3BHK, you can downsize to save more money on rent.

Another way to cut down your expenses is through grocery shopping. Instead of buying branded products, purchase when there is ‘Sale.

When you budget, ensure you add all the monthly expenses where your money goes.


Set your spending limit

It is important to be realistic about how much and what you can afford. When you set your monthly budget, learning how to set a spending limit is equally important.

The math is simple. When you set your spending limit low, you are less likely to overspend and hence can save more.

While budgeting, calculate how much extra money you are spending on unnecessary things. Cut those from your budget and set a limit for yourself.

If your monthly income is say, 1 lakh and your living expense is 70 thousand, here you are set a limit over your expenses.

Say, you must take it to 60 thousand, hence, you can save 10 thousand more than before.

Setting a limit is beneficial, as it provides a cushion to your savings. Keep a track over your spending, where and on what your money goes.

If you see you are spending way more on outside food, which is exceeding your spending limit, you must think otherwise. Start cooking at home more. Significantly, it will save you more.

Automate your savings

Savings is above all crucial. We do budgeting to save money. One of the best ways is to automate your money. You can set up your account to transfer a certain amount that you set from your checking account to savings account each month.

The benefit of automating your savings is you are less likely to touch the money from your savings. Set a amount for your savings after you calculate your expenses.

Keep at least 20% of your money in your savings account. Ensure you never have to pull money from the savings account to meet your monthly expenses.

Here, is why budgeting is important, as it helps you tracking your money and stop overspending. When you don’t overspend, you will never have to worry about spending money from your savings account.


Track your spending and refine your budget monthly

In the process of creating a plan for your money, budgeting involves tracking your spending, allow you to meet your saving goals and keep you out of debt.

Every month is the same. In some month you may have extra expenses on medical or you have to spend money buying a new gadget. Monthly expenses never remain the same every month. It varies.

Budgeting help you track your spending. If you spend more this month, the next month it will help you control your expenses.

Budgeting keeps consistency over your expenses and lets you refine your priorities as per your need every month.

track your spending to budget your monthly expenses

Final Words –

It is not important how you budget or what method you are following, the steadiness in maintaining your financial planning is important.

If you are super rich and money flows in your pocket doing nothing, you don’t need to budget. But if you hail from a middle-class family having middle-class roots, living by paychecks, budgeting will help you sorting out your money matters.


What is the best way to budget monthly?

The best way to budget monthly is by figuring out what your regular expenses are and setting aside money each month to cover them. This includes things like rent, groceries, utilities, transportation, and debt payments.

Once you know what your regular expenses are, you can start to look for ways to save money so that you can have more money available each month to cover your expenses. However, what works for one person may not work for another. 

One popular method for budgeting is the envelope system. With this method, you allocate a certain amount of money for each expenses category (e.g., housing, food, entertainment) and put the cash in envelopes labeled with the category name.

Once the money in an envelope is gone, where you allocate a certain amount of cash for each spending category; the 50/30/20 rule, which allocates 50% of your income towards necessities, 30% towards wants, and 20% towards savings and debt repayment; and the zero-based budget, where you give every dollar a job. 

Another option is to track your spending using a budgeting app or spreadsheet. This can be a more detailed and customized approach, as you can specify exactly how much you want to spend in each category. You can also use this approach to set up long-term savings goals. 

What are the 5 basic elements of budget?

Your budget starts with your income. This is the money you have coming in on a regular basis, including your paycheck, child support, alimony, and any other source of income.

This refers to all the money that goes out of your household. This can include mortgage or rent payments, utility bills, food, and more.

Once you know how much money you have coming in and going out each month, you can start to think about how much you’d like to save. This might include setting aside money for an emergency fund or for a specific goal, like a down payment on a house or a new car.

Debt Repayment:
If you have any debt, you’ll need to make sure you’re accounting for it in your budget. This means including payments for things like credit cards, student loans, and car loans. 

Finally, it’s important to remember that budgets are not set in stone. You may need to adjust your budget from month to month as your income or expenses change. And that’s okay! The most important thing is that you’re taking the time to track your finances and make conscious decisions about where your money is going.

What should your budget focus on first?

It is generally recommended to focus on your necessities first when creating a budget.

Necessities are the expenses that are essential for maintaining your basic standard of living, such as housing, food, utilities, transportation, and healthcare. By ensuring that you have enough money to cover your necessities each month, you can avoid financial hardship and ensure that you have a solid foundation for your budget.

After you have accounted for your necessities, you can then focus on your other expenses and financial goals, such as saving for retirement or paying off debt. It is important to prioritize your spending and allocate your money towards the things that are most important to you, while still being mindful of your overall financial situation.

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