How To Plan A Monthly Budget That Actually Works
Planning a monthly budget is a crucial financial activity to make sure you have financial stability at all times. Your monthly budget will also be instrumental for achieving targeted goals for savings. In the current economy - still recovering from the last crisis - managing personal finances through a steady process can make a significant difference. Overdrawn credit cards, sudden medical expenses, emergency situations, and other out of the blue events can significantly impact your personal financial stability.
Yet, with all that being said, planning a monthly budget may appear complicated, overwhelming, and tedious to a vast majority of people. Statistics in the US show that only 1 in 3 people decide to actually do this as a monthly activity. However, this process doesn't need to be as complicated as you might have thought, and definitely as ominously time consuming. There are a few simple steps you can follow every month to make sure you achieve your financial goals, without spending too much time on this. And if you worry that maybe trying it out will end up in the basket of abandoned New Year's resolutions because it won't work, take a look at our list of recommendations and then decide for yourself.
Plan for your style
We all have our personal styles when it comes to spending and saving. Some choose to pay bills, set a small amount aside for savings, then spend the remainder of their income. Others like to thoroughly plan, carefully tracking all their expenses, especially when incomes are tighter. Meanwhile, other people opt for reverse budgeting, where they start by planning to save a certain amount and work their way back to adjusting expenses accordingly.
For any of these styles, having a tool to write down your financial monthly goals is essential. Which brings us to the next point.
While all personal budgeting used to be done with a pen and paper, today you can switch to a much less tedious option by using free web or mobile applications. Or if you're more analytically inclined, there's plenty of subscription-based services to assist you with your monthly budget planning.
One thing is for sure: going digital can make a huge difference in tracking your expenses. It's much easier to analyze all you are spending using one card account or digital wallet, and sending the info to a budgeting app. Without actually having to write all expenses down meticulously on a piece of paper, you can get all that time back for a relaxing afternoon or evening. With all that said, make sure to get a certified app, and read reviews first.
Analyze your financial pattern
With everything in place now, you can start seeing how your budget behaves. The more time goes by, the more insights your digital tool will yield regarding your finances. Maybe your standard spending in a month is $2,000, but then again once per quarter you have additional expenses like a renewing membership to a gym.
Don't forget your annual property or city taxes which pop-up when you completely forget about them. All of this will be tracked digitally and the more months go by, the more clarity you will have on how you balance your expenses vs savings.
When you take a look at this, don't forget the golden rule 50/30/20 – on average most families will spend 50% on necessities like food and electricity bills, 20% should go to financial goals, whether that means savings or paying off debt, while 30% can comfortably go to what one enjoys in their daily life – whether it's a dinner, a movie or other types of entertainment.
Go on autopilot
Once you're starting to see the budget pattern emerging using your new tools, it's time to take the next step. This is the time to consider how much you spend on average, what's realistic to keep for your daily indulgences, and therefore what could you reasonably set aside for a rainy day.
Going on autopilot is a standard option nowadays with most digital financial tools. Once you feel confident about your financial pattern, take a step forward and put your finances on autopilot. Having your bills paid automatically and your savings set aside safely will be both time effective, as well as spare you the hassle of bargaining with yourself.
Autopilot ends up being a real positive reinforcement for monthly budgeting the right way. As soon as you'll see your savings nicely piling up with next to no effort on your side, you'll know you're now having a monthly budget which works for you.
Whatever is left after autopilot is what you can consider a worry-free allowance. Indulge yourself, take a step back and relax. You are still tracking these expenses with your digital tools so you can get an overview and analyze it. But, with that said, you're enjoying financial stability, a steadily growing savings account, as well as your own free time the way you'd like it to be.