HOW TO CREATE A MONTHLY BUDGET FOR BEGINNERS?

Spread the love

How to create a monthly budget for beginners?

What is a budget?

A budget is an estimate of your income and estimate, it is a plan of how you will spend your money within a given period of time

What should be included in a budget?

  • Your income
  • Expenditure
  • Saving
  • Debt repayment

What is a monthly budget?

A monthly budget refers to financial planning of how much you will earn and spend within a given month

How do you make a budget?

To make a budget you need to have an estimate of your income and expenditure

These are the questions to ask yourself while drafting a budget

  • How much income you have?
  • How much expenditure do you have?
  • How much money you want to save?
  • How much money to pay for your debt or credit card
  • How much you’re willing to pay yourself
  • What are necessities and wants
  • What are the main priorities

Your budget should include a list of all items you want to purchase

What is the best way to allocate my budget?

The best way to allocate your budget is by using the 50/30/20 rule

What is the 50/30/20 rule?

  • Spend 50% of your income on necessities
  • Spend 30% of your income on wants
  • Spend 20% of your income on savings or debt repayment

What are necessities/needs?

Necessities are those items you can do without and they include food, clothing, medical care, shelter

Wants are those items that you feel are essential to your life and they include power, phone, car, entertainment etc.

Saving is the difference between your income and expenditure, it is that money that remains from your income after you have purchased the products which you want

Debt is that money which someone owe to you, it is the amount of money you borrowed from someone else which you must repay

What is income?

Income is that money which you have earned or received, it can be either gross income or net income

Gross income is that income before you have deducted taxes while net income is that money after deducting taxes

Net income is that amount of money that is available for you to spend or save

While budging, you should make sure that your income covers both your needs

Types of budgets

There are mainly 3 types of budgets and they include:

  • Balanced budget
  • Deficit budget
  • Surplus budget

What is a balanced budget?

A balanced budget refers to the one where your income is equal to expenditure

In this you spend all the money you earn and remain with zero balance

What is a surplus budget?

A surplus budget refers to one where your income is greater than your expenditure

In this after you have bought all your items, you remain with a balance which you can save

What is a deficit budget?

A deficit budget is one where your income is less than your expenditure

In other words you borrow to supplement on your income

Your income is not enough to cover your monthly bills

Which is the best type of budget?

The best type of budget to have is a surplus budget where you will be left with what to save or cover your debt

What should you do while budgeting?

Create a list of all your monthly expenses

You need to make a list of preference, a list of preference is a list of all products you want to purchase arranged according to your priority

You should put the most wanted products at the top and the least needed items at the bottom

Why make a list of preference?

A list of preference will help you choose what products to buy or leave, it will help you remove products that are not essential in your budget

While making a list of preference you need to know how much money you’re going to save, finance debt or put in an emergency fund

Your list can look like this

  • Food
  • Shelter
  • Car mortgage
  • Insurance
  • Personal loan
  • Travel
  • Entertainment
  • Loans
  • Savings

To get the best of your budget, I recommend that you use the 50/30/20 rule as explained above

50% goes to needs

Examples of needs

  • Housing/rent
  • Shopping
  • Transportation
  • Insurance
  • Clothing
  • School fees

Etc

30% goes to your wants

Examples of wants include:

  • Entertainment
  • Travel
  • Eating out

20% goes to your savings or debt payment

You should put the 20% towards saving/investing or starting an emergency fund

Why do you need to put some money in an emergency fund?

Emergency fund will help you get money to cover your unexpected needs

An expected needs may include:

  • Illness
  • Accident
  • Death

Etc.

Basic steps in budgeting

  1. Determine your income
  2. Set your goals
  3. Determine your expenses
  4. Adjust your expenses
  5. Know the difference between your income and expenditure
  6. Know how much you want to save

Best budgeting tips

  1. Set your budget goals
  2. Don’t use credit cards for shopping
  3. Make saving a habit
  4. Start an emergency fund
  5. Track your spending automatically
  6. Use budging apps’
  7. Create your budget and follow it
  8. Start a side hustle to supplement on your income

How can you stay motivated with your monthly budget?

  1. Stay with people who respect your budget
  2. Know the goals you want to achieve
  3. Define your goals
  4. Learn financial literacy
  5. Keep yourself inspired
  6. Track your spending automatically

Conclusion

Has this article added value to you? Feel free to share your opinion with us in the comments below