It’s no news that some people still find it hard to create a monthly budget that will assist them in staying on course for their financial goal like in going on vacation, retirement or paying off their debt. And for the rest who get to bypass the first stage of creating their monthly budget, they are often faced with the challenge of finding a budget that works for them or them sticking to it.
That’s why today I’ll be showing you how to create a successful monthly budget plan.
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How to Create a Monthly Budget
It all boils down to a simple equation which entails that Net Income(NI) which is your income after taxes – your Fixed Expenses(FE)- Savings equals the amount of money you have left to budget. If you didn’t get that, I’d break it down a little further
Fixed Expenses(FE)
Fixed expenses include things like housing, which covers your rent or your mortgage payment, insurance like car insurance, health insurance, loan payments like paying off your car, credit card payments or things of that nature.
Also, other bills where you do not directly affect how much you spend every month are part of your fixed expenses.
Net Income and Savings
Statutorily, you should save around 10 to 15 per cent of your net income. However, you should always keep money first before you spend money. As such, always endeavour to take out the money that you want to save towards a goal like a retirement, going on vacation or paying off your debt before you go ahead and spend the one that’s left.
In other words, aim to save 10 to 15 per cent of your net income, and what you have leftover is the amount of money you have to budget towards other things. Below is a breakdown of percentages that you should a lot towards each part of your income for your budget.
- Housing – 25%,
- Utilities- 5 to 8%
- Medical bills or health insurance -7%
- Charitable donations like giving to your church or other charities – 10%
Then your income money going towards savings should be about 15%, insurance at about 5%, transportation should be about 10%, and the rest could be spent on groceries, eating out fun, cell phone and things like that. Nevertheless, what most experts recommend is spending about 14% of your budget on food, 3% on clothing and the rest is up to you.
And as the case is here in the United States, the national average income before taxes is about $57,000 annually, after fees become $43,000 a year which invariably nets about $3,500 a month. So let’s say this is your monthly earning, for instance, below is what your budget should and would look like in each of these categories, following the above calculation.
- Housing- $875
- Utilities- $280
- Medicals- $245
- Donations- $350
- Savings- $525
- Insurance- $175
- Transportation- $350
- Food- $490
- Clothing- $105
So in a nutshell, this is how you should set up your monthly budget. Just your net income – fixed expenses – your savings equals your variable costs or the amount you have left to budget for the month.