Abiding by a monthly budget plan is often seen as restrictive when it can be financially liberating and make personal financial goals more achievable.
Those with a well-planned budget can track where their money is going and eliminate unnecessary expenses at very little personal sacrifice — good budgets make room for both needs and wants.
Knowing how to make a monthly budget plan that accounts for necessities, leisure, and surprise expenses is an essential, even empowering financial management skill.
Step 1. Calculate Your Total Monthly Net Income
The first step to creating an effective budget plan is calculating your total net — or after-tax, monthly income.
An individual’s expenses should never exceed their monthly income. Expenses can’t be assessed without knowing how much money is available each month.
For those with just a single source of income, simply subtract taxes and all other deductions like 401(k) withholdings from the total income to find the total net monthly amount.
A person with multiple sources of income should list the net of each separately and then add the amounts together for the monthly total.
To find the monthly income amount, you are advised to look at recently received pay stubs for exact amount(s).
Those with inconsistent or irregular incomes should refer to the total net annual income of the previous year as stated on their tax forms. Divide that figure by 12 to get the expected total net monthly income.
Step 2. List & Categorize Expenses
Once a total monthly net income has been calculated, start listing out expenses based on these categories:
- Savings: This should include an emergency fund of three to six months-worth of living expenses as well as retirement contributions and any active investments.
- Housing and Living: Expenses like mortgage or rent and utilities belong in this category.
- Food Expenses: Any money spent on dining out and groceries counts towards food expenses.
- Transportation Costs: Consider expenses like car insurance, fuel, and tolls for this category.
- Personal Expenses: Money spent on pets, clothing, child care, and personal care like haircuts should be listed under personal expenses.
- Health Expenses: Medical bills, copays for doctor’s visits, and health insurance all fall under health expenses.
- Debt: This category accounts for any personal loans, credit card payments, and other debt that needs to be paid off.
- Entertainment: Expenses within this category will contain the most “wants,” like money set aside for vacations, concerts, and other recreational activities.
Of course, the expenses listed in each of the above categories may differ for everyone.
For example, those who rely on public transit and don’t own a car may include money spent on public transportation under the “transportation costs” category.
Personal budgets are unique to the individual but organizing expenses based on a general framework of categories can help to ensure nothing is left out.
Those who are struggling to decide what to include in their budget are encouraged to use the 50/30/20 rule.
Under this rule, 50% of the total net monthly income is reserved for needs, 30% is allotted to wants, and the remaining 20% goes towards savings or debt repayment.
Step 3. Input Everything into a Personal Budget Template
With a completed list of categorized expenses and the total monthly net income accounted for, it’s time to input that financial information into a clearly formatted, personal budget template.
Many personal budget templates can be downloaded for free online — quite a few can be found on the websites of financial institutions like banks or credit unions.
Typically, these financial templates are accessible to everyone, not just members.
HRCCU’s personal budget template is detailed and easy to follow. It includes the categories listed above and breaks each one down into individual expenses while still leaving room for customization.
Step 4. Revisit & Revise as Needed
Because income, expenses, and priorities tend to change over time, it’s important to revisit and revise the budget plan so it suits those adjustments accordingly.
A monthly budget should be revisited once a month to ensure it’s still relevant and includes any changes to lifestyle or finances.
A significant increase in gas prices, for instance, is an important change that should be reflected in the monthly budget plan.
Perhaps you’ve received a raise, moved, or want to start a family — factors such as these can affect the monthly budget and need to be accounted for.
Using an online or mobile banking app can help with maintaining an updated budget plan.
With HRCCU’s online and mobile banking app, members can track their expenses, pay bills through Zelle or Bill Pay, and adjust their personal budget at any time.
Take Control of Your Finances with HRCCU
Financial freedom is priceless. And with a personalized monthly budget plan, it can be achieved.
Life is unpredictable, but a monthly budget plan can help to prepare you financially for unexpected or unplanned expenses and allow you to allocate finances to what’s most important to you.
Take control of your finances with assistance from the financial experts at HRCCU.
Members of HRCCU have access to resources and affordable financial counseling services that can empower them to make the best financial decisions for their lifestyle.
Contact us today to learn more about how HRCCU can help you navigate your finances.
