How to make a monthly budget for beginners in 2022?
Many people make money but have no clue on where they are spending their hard earned money.
Money comes in at the end of the month and before you even realize you are left wondering where all the money..😥
If there could be a way to keep a track of what comes in at the end of the month and what goes out, you could understand more about your financial position.
This is exactly where budgets help serve the purpose. But how to make a monthly budget.as a beginner?
That’s exactly what we are going to look at.
In this Guide
6 steps on how to make a monthly budget as a beginner in 2022
As a beginner budgeting may seem like a daunting task. This may seem like the other financial jargon that is too difficult to comprehend.
But budgeting is a really simple technique to assess your financial position on a day.
Let’s figure out how to make a monthly budget.
1. Make a note of your existing financial position to understand about how to make a monthly budget
Before moving in to create a budget for a month, it’s important to understand the existing financial position.
This is important to assess where you wanna head into in the time to come.
Here’s a scenario, let’s take this example:
- Let’s say you are making $4000 per month. This may come from your day job or maybe from a side hustle that you had started recently.
- Next, let’s say you had spent roughly around $2500 last month for an entire monthly expense. This would include all fixed as well as variable forms of expenses that you have incurred during the month.
- This means you are left with a savings of $1500 which is somewhere around 38% of your total earnings.
So here 38% ($1500) is the benchmark figure for your reference to create a budget for the subsequent month.
2. Calculate the total monthly earnings for the month
When you prepare the budget for subsequent months the first step is to calculate the total monthly earnings for the month.
While making the calculations, consider all sources of earnings i.e. fixed or variable.
Fixed source of earnings maybe your salary earnings or any form of passive income such as rent etc.
Variable source of earning may be any money made online such as from blogging, youtube or other sources.
👉 TOTAL EARNINGS = FIXED SOURCES OF INCOME + VARIABLE SOURCES OF INCOME.
Once your income for the month is set you know how much inflow is coming to your account during the month.
3. Estimate your monthly expenses based on previous month expenses
Next step is estimating your monthly expenses for the month. Remember its an estimate and can this vary to a certain extent when its actually incurred.
While making this estimate incorporate all forms of expenses that you have incurred previously which you feel would affect your earnings this month.
Typically, in an ideal scenario, your types of expenses won’t vary from month on month.
But, if there is an expense which you won’t incur this month, then eliminate that from total expenses.
This is mainly in the form of fixed expenses incurred monthly such as EMI expenses.
When it’s your last EMI that you paid for last month, it’s quite reasonable to not include it this month.
Thus make a proper estimation of your monthly expenses that you expect to incur in subsequent months.
Again, 👉TOTAL SPENDINGS (EXPENSES) = FIXED EXPENSES + VARIABLE EXPENSES.
4. Set up your financial goals what you want to accomplish from your monthly budget
Setting your financial goals from the very beginning will help you to accomplish your goals from very early on.
What I mean to say will be clear from the following:
Let’s say you are planning to buy something worth $30k and you are looking to save money for it. When you have prepared your budget correctly, you tend to cut down on your costs to save to meet the 30k mark without compromising on your needs at all.
What this means is if you are regularly able to save even $1k worth of money you are gonna meet this goal within the 2.5 years mark.
This may seem pretty simple, but believe me saving money is an art which requires discipline and consistency like everything else in life.
Thus your financial goal is to save $1k every month.
Now you have to figure out calculating backwards on “HOW YOU ARE GOING TO MEET $1K EVERY MONTH”.
Establishing your financial goal every month will set up the tone of the budgeting.
5. Revisit your original budget to incorporate new changes
When you make a budget, it’s not only meant for serving one purpose. Once you have made a budget revise it as per your needs if the need arises.
Life is always uncertain and so are expenses and saving money for meeting emergencies.
When you prepare a budget initially but later on find that you are incurring new expenses all of a sudden, you must revise your budget to see how the position has changed.
Revisiting your budget makes it more valuable as per your existing scenario and suits your current need.
For this you can always keep a 5% margin for additional expenses that you may incur on top of expenses already budgeted for.
6. Understand the difference between need, want and savings properly
A common budgeting principle that people follow in general is the 50/30/20 rule.
What this rule specifies is the fact that spend around 50% towards fulfilling your needs.
30% towards taking care of your wants. 20% towards saving and planning for the future.
A need is something which you must fulfill no matter what, such as food, clothing, healthcare or maybe the house that you stay in.
These expenses are those expenses that must be borne no matter what.
A want is that type of expense which adds to your lifestyle while it is not a necessary expense at present.
This may be a watch, a fancy car, a new computer, TV etc. These all fall under the category of want.
Of course this may vary from person to person but these are ideally the same for many people.
Money kept aside for meeting some emergency situation which can’t be decided upon earlier, will need some form of savings early on.
Thus make it a habit to stick to a saving plan right from the beginning to accumulate wealth for other purposes in life.
What we learnt?
Making a monthly budget is not that difficult and can be easily accomplished through use of tools such as excel or any mobile app.
Here’s a 6 steps approach on how you can make a monthly budget in 2022:
- Track your existing financial position to take as a benchmark for the future monthly budgeting.
- Calculate the total monthly earnings for the month
- Make an estimate for the monthly expenses that you will incur in the month to come.
- Set up your financial goals to determine your goal from the budgeting.
- Revise your original budget when needed to realign your budget to present scenario.
- Follow the 50/30/20 rule to save enough and invest money wisely from your earnings.