How to make a personal monthly budget

Creating a personal budget is a big step toward financial stability. Everyone should have one, no matter how much they make. This guide will help you identify categories of spending and give you a step-by-step guide to create a budget that will help you get to where you want to be.

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What should you include in a personal budget?

At a time when the cost of living seems to go up with each passing day, budgeting your finances and saving for the future have never been more important. It’s easy to find yourself caught in the relentless currents of rising prices and debt while trying to find a balance between today’s expenses and tomorrow’s security. You are not alone. The first step to finding better financial stability is to understand your spending and what types of things are essential versus things that are extra. There are four primary categories of spending that will help you plan your budget:


Needs like housing and groceries

Start by budgeting for essential expenses. These are nonnegotiable items that you can’t comfortably live without, and they form the foundation of your budget. Allocate a specific percentage of your income to cover these necessities, ensuring stability and security. Needs can include:

  • Mortgage or rent
  • Transportation
  • Utilities
  • Phone
  • Internet
  • Groceries
  • Childcare


Wants like fashionable clothing and dining out

While needs are essential, even with a strict budget it’s equally important to budget for some of your wants. You’ll probably need to reduce your spending in this category, but you don’t want to get rid of it entirely. No budget is ever exact every month, and the wants category is where you have a little wiggle room. Prioritize the things that make you the happiest. This will allow you to enjoy life while maintaining financial responsibility.


Debt repayment

Going into significant debt is the worst thing you can do when you are on a budget. If you have high debt, you will continue to fall further and further behind as interest payments increase. It’s important to prioritize paying your debts off as quickly as you can. Start with the minimum payments in your budget and resolve not to add anything to your total debt. Then devote any additional funds you can toward the balance to help accelerate getting out of debt.


Saving for expenses and retirement

Everyone needs to save money for an emergency fund so you can take care of unexpected expenses. Creating one should be a top priority. Most financial professionals advise having three to six months of expenses for basic needs saved up. That way, when your car needs a repair or you have unexpected medical expenses, you won’t have to scramble to redirect important portions of your budget. Once you have your emergency fund in place, you can adjust your savings toward other things, like a vacation fund or retirement.


The 50/30/20 budget rule

This rule is a common budget framework that’s easy to understand and follow. Basically, it suggests taking your monthly after-tax pay and splitting it up as follows:

50% goes toward needs

30% or lower can be spent on wants

20% is reserved for savings or paying down debt

By following this plan, you’ll be able to manage your monthly needs and still have fun, all while creating a savings pool to cover costs and prepare for retirement. If your needs significantly exceed 50% of your take-home pay, you may want to reduce your wants spending for a while and reevaluate your long-term situation. Keeping this balance is a key to financial stability. Here are the steps to creating a solid budget:


How to budget money

Creating a budget is a tried-and-true formula for managing your financial spending. There are many ways to go about it, but at its core, the steps are similar. They work for both a regular monthly budget and managing a windfall. By working through this process, you’ll have a much better understanding of where you are spending today and how you might want to adjust that to be better prepared for the future.


Break down and track your current spending

First, go over your spending from recent months and assign each purchase to one of two columns: needs and wants. Needs are the things you can’t live comfortably without, like rent payments and utilities. Wants are still important, but you could live without them if you had to. Then add up the amount you spend on each and compare the totals to your monthly after-tax income. This will give you a good picture of how far your money can go and what you might want to reduce or cut out of your monthly spending. For example, if you find that you spend $250 on takeout coffee each month, making coffee at home could be a good option.


Set goals and make a plan

Map out a budget that is within your means and aligns with the 50/30/20 rule, or comes as close to it as you can manage. This is your ideal—something to strive toward. It will likely require you to reduce your spending on wants like dining out, but that also means you might need to increase your grocery budget to compensate for eating at home more often. Remember, the first plan you set doesn’t have to be perfect; it just has to represent progress. There will be time to make adjustments and continue to refine your spending.


Review and adjust your budget every few months

Every month, you should check your spending versus your plan. Note areas where you may be overspending and areas where you might have budgeted too much. Don’t change your budget yet; just keep track. Give yourself a grade if you want. Then, after three months or so, see if there are any patterns. There should be enough information to adjust your budget closer to your ideal. Rewrite your plan with new goals and try hard to stick to them. This process of readjusting every few months is how you make progress. Your budget should grow more useful as you learn more about your habits and spending. 


Saving for retirement, even on a budget

When you’re on a budget, it’s often difficult to plan for, or even think about, retirement. However, saving even a small amount early in life can have huge rewards, thanks to compounding interest. Every $100 saved at age 30 could be as much as $2,800 in retirement.1 If the company you work for has a 401(k), that’s a great place to start, particularly if the company offers an employer match. Passing up that match is like giving up “free” money for retirement. Prioritize that first, then consider personal retirement savings like IRAs or mutual funds. Read how to start investing.

Frequently asked questions

That will depend on your location, lifestyle, and what you want out of retirement. The general rule of thumb is to have roughly 1.5 times your current yearly salary in retirement savings by age 35.

As much as you comfortably can. It’s generally advised that you set aside at least 20% of your income for saving and covering debt.

Any amount saved each month is good. Whether $1,000 per month is ideal will depend on your income. You want to save roughly 20% of your income each month.

Monitor your spending, make a plan, and stick to it. Identify your needs versus your wants. Prioritize paying down any debt. Adjust your budget as needed.

Standard guidance is to spend less than 50% of your income on essentials like housing, utilities, and groceries.


We can help with budgeting and financial strategies

Our professionals can answer questions and put financial tools in place to allow you to save for retirement while managing a budget.

1Based on $100 with 8% assumed rate of interest compounding for 35 years.


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