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If you feel like you never seem to get ahead financially, or don’t know where all your money is going, it’s time to learn how to make a monthly budget that works for you.
But… you’ve heard this before, right? You’ve tried a monthly budget planner or used a budget template that was supposed to make your finances fall into order. Although most people (90%) say that everyone should have a budget, only about 30% of us do. Problems with eliminating debt or building up savings are all too common. Across all income levels, people struggle to get ahead in their financial lives.
So how do you make a monthly budget plan that works? An increasing number of people are employing a “Zero Balance Budget” strategy that gives all money coming in each month a ‘job’ – down to the last penny.
If you are a student, this may seem like an overwhelming task already. Don't fret, you are in the right place! Watching our webinar on how to create a college budget would be a good first step.
Also called a “zero-sum” or “zero-based” monthly budget, the premise is to put an APB out on every dollar of income, and then tell it where to go. At the end of the month, each dollar has gone somewhere to do its job.
No, this doesn’t mean you spend every dollar you have every month.
And no, it doesn’t mean you give it to someone else to manage for you!
You simply list all of your bills, spending needs, savings goals, and debt payments, then make every dollar do one of these jobs! At the end of the month, the goal is to have exhausted all of the monthly revenue you took home – or – be back to a ‘zero balance.’ Lots of folks do make a plan to have some buffer funds that stay in the checking account in case of miscalculation, but the idea is the same.
Helpful Tip: It’s important to have a checking account that doesn’t hit you with a fee for having a low balance! Free checking accounts exist (and we have one!)
In a Zero Balance Budget Plan, here are some of the ‘jobs’ your money does for you: paying mortgages or rent, buying groceries, making auto loan payments, filling up on fuel, contributing to retirement accounts, bulking up emergency savings, and spending on fun stuff. Yes! You can still have money to spend on your favorite pizza place or on that new pair of shoes you’ve had your eye on.
The point isn’t to spend zero money, but to make your net income work for you. Instead of just taking care of bills and spending the rest of your paycheck mindlessly, you’ll be working towards your financial goals. This can be a game changer!
Have you seen those beautiful vision boards on Pinterest where people cut & paste pictures of their hopes and dreams on a big poster board and then decorate it? Don’t worry, we won’t make you do that.
But the process of how to plan your family budget does take some visualization and goal-setting in order to be effective. Take a moment and consider the lifestyle you are currently leading. Where do you live, work, & play? What do you do with your free time? What stresses you out financially? Close your eyes and think about this for a moment. [No, really, you should do it.]
Did you know that visualizing your goals can actually change your reality? A study showed a 13-30% increase in muscle strength when individuals simply thought about doing strengthening exercises.
Knowing the power of visualization, now picture your desired lifestyle. Is it different than your current reality? What are some of your dreams and goals for the future? Don’t just say something like ‘pay off debt’ because yes, although that is important, right now we’re focusing on your dreams and aspirations. Think big!
Watch our webinar, Easy + Empowered Budgeting in 4 Simple Steps, for assistance in cultivating your personal goals.
If you are like most people, there are probably areas that you’d improve if you could. Choose three of the visualizations for your desired lifestyle and future goals/dreams. Write them down!
Newlyweds and those planning to get married can set up a family finance support system, immensely improving their chances of avoiding marital strife.
Once you have your goals on paper, you’re ready for your monthly budget plan!
The first step to an improved financial life is knowing how much money you make and where that money goes. In order to track spending, it helps if you have the following documents. Gather the ones below that apply to you.
One month’s worth of:
The nice thing about going directly to your financial institution (using statements or online banking) is you can usually view and sort your transaction history as needed for a particular purpose. More to come on this in following steps.
Net income is take-home pay or the amount of money you get to keep after deductions and/or taxes are removed from the gross amount. Always use net income when making a monthly budget or family budget plan.
Examples of taxes and deductions: Federal Income Tax, FICA (Social Security + Medicare), State Tax, Local Tax, Medical Insurance Premiums, 401k contributions, Life Insurance Premium, Dental Insurance Premium and Child support/alimony
Next, put yourself in one of these income categories – regular or irregular?
(Both are putting money in your pocket, so both are great!)
If you make about the same amount of money each time it comes in, you are a recipient of regular income.
If the amount you make varies significantly because of tips, commissions, hourly differences, multiple side-hustles, etc. then you are making irregular income. Tips for both groups are below!
If your household incomes are regular, adding up your income is pretty simple. Take a look at the income-related direct deposits you got into your checking account during a recent month, and add them up. This is where your bank statements or online banking transaction history comes in super handy. Helpful Tip: Many people have two paychecks/direct deposits per month (bi-weekly) but yours may be different! Find all income for the calendar month.
Another way to tally income without bank statements or online banking is to take a look at a recent month’s worth of paystubs/receipts of income for all household members. Then, add these amounts up.
Side note on what counts as income: To answer the question I know someone is asking: no, your winnings from betting your friend he couldn’t eat 10 hotdogs does not count as income. Neither does the mail-in rebate you got for your recent vitamin purchase! Your scratch-off lottery ticket winnings don’t count either, unless you’re suddenly a millionaire – in which case, let’s talk!
If you have one or more incomes that vary from month to month, listen up. You have two options:
The first option is more conservative because it builds your budget off of the (likely) lowest income you’ll have. Then, it will reward you with extra dollars to allocate if you make more than that. The second option is probably a higher monthly number, which makes it easier to meet all your budgeting goals. However, you’ll be stuck if you make less than the average in any given month.
Once you’ve decided your approach, use the same tactic as a regular income household and add up income from either bank statements or paystubs/receipts.
If you would like a more simplified approach to begin your budgeting plan, try out our budget organizer.
Knowing your expenses is more than just arriving at a total. The zero balance budget approach allows you to analyze the information and then challenges you to spend every dollar intentionally.
Where to find your expenses? Again, grab your bank statements and credit card statements. What payment method do you use to pay for things like groceries, pizza delivery, etc.? Make sure you’re checking all of these sources for one month's time to get a good idea of your expenditures across the board.
Start with a simple, three column sheet (see below!) and group expenses into three categories:
If you added up all your expenses (bills + saving + spending) and subtracted it from your income, hopefully, everything zeroed out. When that’s the case, all of your incoming revenue has a purpose and that can be adjusted as needed! You’re off to a good start. Move on to the next step of the budget plan.
This just means that some of your money still needs a “job” in your monthly budget!
Let’s say your income, for simplicity’s sake, is $1000 per month.
All bills: $600
All spending: $250
Savings: $50 per month in a savings account.
That means when you subtract all those expenses (bills/spending/saving) from your net income, you still have $100 left over – SCORE! In step 6, we’ll work on giving this money a job within your budget plan
This means you’re currently spending more than you make. Not to worry, we’ll address ways to tackle this! The first step is just knowing that it's happening! You'll be on your way to better financial health health in no time!
One of the primary goals of this monthly budget planner is to assign a measurable task or job for every penny that comes in and goes out. Some folks subscribe to a basic 50/30/20 rule, where 50% goes towards bills, 30% towards spending, and 20% towards different types of savings. But we realize that everyone has different goals and different needs, so don’t get hung up on meeting these numbers.
Take the time to review your current net income and those three categories of expenses – bills, spending, savings.
Ask yourself some questions, like:
At this point, it’s a game of playing with the numbers. If you haven’t already, download our free budgeting template which coordinates nicely with everything we’ve discussed so far. Use it to plug in your numbers and see what happens if you take the $200 per month you spend on a gym membership and switch to a cheaper plan. That extra $150 per month could be a huge step in the right direction for a goal you have – such as saving for home improvements or paying down debt.
But what if you don’t know what to prioritize? Here’s what the experts say to focus on, if you’re just starting out with a budget plan:
Don’t be too stingy with yourself. If you leave $0 for spending money, you’ll eventually get frustrated and give up on your budget.
Start with a goal of saving $100 for an emergency. Put it in a separate account! Once you reach that, bump up your goal to $500. Next, shoot for 1 month’s earnings. When you’ve banked one month’s earnings, start working on 3 months. The goal is 3-6 months’ worth of funds, but baby steps are better than no steps at all! Did you know that 28% of Americans have no emergency savings fund? You’ll be ahead of those people in no time. It may be efficient to store your emergency fund in a separate savings account. Find the best savings account to suit you!
Either focus on paying off high-interest debt first, or lowest balance debt first. Credit cards, retail loans, and lines of credit tend to have higher rates than car loans and mortgages. Make more than the minimum payment if you can, or simply make a fixed payment each month regardless of what the minimum is. Helpful Tip: An APR over 9%-10% is considered ‘high.’
Putting money to work for big-ticket items such as vacations, big purchases, or future down payment on a home or car tends to be a wise long-term strategy. This prevents you from throwing those expenses on a credit card in the future. Perhaps setting money away for these expensive goals will allow you to plan a vacation on a budget?
Take a look at Rob & Alice’s budget, below. This is where they were after following Steps 1-5 of our guide.
Spending money totaled almost $1000 per month, while they were saving just $25 per month. Their financial goals were telling them to set aside cash for an emergency. They also started thinking ahead to the big vacation they want to take within the next couple of years. Alice noticed how much extra cash they’d have if they paid off their credit cards and didn’t have that extra monthly payment to worry about. Rob called the cell phone company and got their bill lowered by committing to using less data.
After discussing their budget plan, they decided to cut down “Spending” from $950 to $500 per month. This gave them the ability to pay $100 extra to credit card debt each month and begin savings goals for “Emergency” and “Vacation.” See below for the changes that were made.
Using a free budgeting template like this after you’ve worked through some of the details can really help set you in the right direction.
As you can see, the idea of a Zero Balance Budget is to raise awareness about your current spending habits and steer your money into more productive jobs. At the end of each month, every penny can be accounted for and your financial future should incrementally improve.
You work hard to earn a living. It’s about time that money starts working for you.
This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.