The budget is a fundamental tool for controlling our personal finances. Through it, we can plan our expenses and savings, avoid excessive indebtedness and achieve our short and long-term financial goals.
In this article we will show you how to make an effective monthly budget, which will allow you to have greater control over your income and expenses, identify areas where you can save and adopt healthy financial habits.
Why is it important to make a monthly budget?
Making a monthly budget is fundamental to have control over our finances and improve our relationship with money. By knowing our income and expenses, we can make informed decisions about how we spend our money and make necessary adjustments to reach our financial goals.
In addition, the monthly budget allows us to identify unnecessary or excessive expenses that may be affecting our financial situation. It also helps us to plan for unforeseen events or emergencies and to avoid falling into debt or paying high interest rates on loans or credit cards. In summary, making a monthly budget allows us to take control of our finances, achieve financial goals and live with less financial stress.
Step 1: Determine your income
To make an effective monthly budget, the first thing you must do is determine your monthly income. This includes any income you have from your job, online business, investments or any other source.
It is important to note that you should use your net income rather than your gross income. Net income is the amount of money you receive after taxes and other necessary deductions.
If you receive income from different sources, be sure to add them all together to get the total. This will help you get a clear idea of how much money you have available to spend each month.
Fixed income
Fixed income is income that you receive on a consistent and predictable basis, such as a monthly salary or rental income. To make an effective monthly budget, you need to know exactly how much money you are receiving each month.
If your fixed income does not cover all your monthly expenses, you should look for alternatives to increase your income or reduce your expenses. On the other hand, if you have enough fixed income to cover your basic expenses, it is advisable to allocate part of it to savings or long-term investments.
Variable income
If your income is not fixed each month, as is the case with freelancers or commission-based salespeople, it is ideal to make a conservative estimate of how much you expect to earn on average over the next month. Be sure not to include extra income that is not certain or predictable. This way, you'll be able to adjust your expenses according to your actual income without falling into debt or financial contingencies.
Step 2: Identify your expenses
To budget effectively, it is important to be clear about your monthly expenses. This includes both fixed expenses, such as rent or mortgage, utility bills and loan payments, and variable expenses, such as food, transportation and entertainment.
An easy way to identify your expenses is to review your bank and credit card statements for the last month. Make a list of all expenses and break them down into categories such as housing, food, transportation, entertainment, etc.
You can also use apps or online tools to help you track your expenses and categorize them automatically. This can save you time and make it easier to identify patterns in your spending habits. Remember to include all of your expenses, even those you may consider small or unimportant. These can add up over time and affect your overall budget.
Fixed expenses
One of the first steps to making an effective monthly budget is to identify and categorize all of your fixed expenses. These are the expenses that recur month to month and are necessary for your livelihood, such as rent or mortgage, utilities, transportation, food and other basic expenses.
It is important that you include all of these expenses in your monthly budget and add them up to get a total. This will help you have a clear idea of how much money you need each month to cover your basic needs.
It is also advisable to review your fixed expenses regularly to make sure you are paying fair prices and not paying for services you don't need. If you find any fixed expenses that you can reduce or eliminate, you may have more money available to save or spend on other things.
Variable expenses
Variable expenses are those that vary each month and depend on our decisions. For example, the purchase of clothes, leisure and whims. It is important to take these expenses into account so that we do not deviate from the monthly budget we have established. To control variable expenses, it is advisable to establish a monthly limit for each variable expense category. This way, we will be able to know how much we can spend on each item without going over budget. In addition, it is important to be realistic when setting these limits. That is, we must take into account our consumption habits and our income to set the appropriate limits.
An effective way to control variable expenses is to keep a daily record of them. We can do this with a mobile application or a simple spreadsheet. In this way, we will be able to know at all times how much we are spending and adjust our behavior if we are approaching the established limit. In short, variable expenses are an important part of our monthly budget and we must pay attention to them so as not to deviate from the path towards our financial goals.
Step 3: Classify your expenses into categories
After you have recorded all your expenses, it is time to classify them into different categories. This will help you understand where you are spending your money and where you can make adjustments if necessary.
Some common categories include:
- Food;
- Housing (rent or mortgage);
- Transportation;
- Utilities (electricity, water, gas, etc.);
- Telephone and internet;
- Personal care (hairdressing, hygiene products, etc.);
- Clothing;
- Entertainment (movies, restaurants, etc.).
Once you have sorted all your expenses into different categories, you can quickly see how much you are spending in each one. This will allow you to adjust your monthly budget as needed and avoid spending more than you can afford.
Step 4: Determine your monthly balance
To determine your monthly balance, you need to subtract your total expenses from your total income. If your income is greater than your expenses, you have a positive balance, indicating that you are living within your means and can save or invest. If your expenses are greater than your income, you will have a negative balance, which means you are spending more than you earn and could be in financial trouble.
It is important to review your monthly balance regularly to make sure you are always living within your means and not accumulating unnecessary debt.
Step 5: Adjust your budget as needed
Once you have your budget and have been following it for a few months, it is important to review it and adjust it as needed. You may have underestimated or overestimated certain expenses or income, so you will need to make adjustments to make sure your budget is realistic.
There may also be changes in your life that affect your budget, such as an increase or decrease in income, the purchase of a home, a new baby, among others. You should be prepared to make the necessary changes to your budget to accommodate these changes. Don't be afraid to make adjustments to your budget. It is a flexible tool designed to help you stay on track with your financial goals.
Tips for maintaining an effective budget
- Record all your expenses: write down every expense you make, even the smallest ones. Keep a detailed record of your income and expenses.
- Create spending categories: group your expenses by categories, for example, housing, transportation, food and entertainment. This way, you can easily see where you are spending the most money.
- Set financial goals: Define short- and long-term goals to motivate you to stick to your budget. For example, save for a trip or a down payment on a house.
- Make regular adjustments: Review your budget monthly and adjust as needed. If you find that you are spending too much in a particular category, look for ways to reduce those expenses in the future.
- Stay disciplined: Follow your budget with discipline. Remember that this does not mean completely depriving yourself of life's pleasures, but finding a balance between expenses and income.
