Making a Simplified Monthly Budget

I have personally struggled a little with creating a monthly budget and being able to stick to it. I was going through my expenses and found that my problem lies in trying to micro manage it. I was too worried about details and not looking at the big picture numbers. I believe that many others have this issue so here is my plan to keep it simple:

Use excel or write down all of your fixed monthly expenses. Here are the 5 Sections you should have:

  1. Fixed Bills: Rent/mortgage, insurances, minimum loan/debt payments, and any other bill that doesn't change every month
  2. Find utility bills for the last 6 months (a year is better) and average these numbers. These include: phone, electric, water/trash, natural gas, and cable/internet.
  3. If you are in debt and paying extra toward a particular card or loan include the "extra" money here as a separate fixed payment. If you have no debts to pay then you can use this section for savings and investment building.
  4. This leaves the items that can vary widely from month to month. For this section I include: food, dining out, entertainment, gas and maintenance for the car, and miscellaneous. Also average this number over the past 6-12 months.
  5. I put at least $100 set aside for incidentals and overages. If it is not used by the end of the month it can go to savings or more debt repayment.
Now that you have all of your data collected you can begin forming a budget. Take your total take-home income and start by subtracting the totals of the sections above in the order given. Once you complete step 3 you now have your total budget for the remaining items (4/5). This total number can be used as 1 lump budget.

It is important to not worry about budgeting the individual items too much in step 4. You can come up with target numbers but I can guarantee that some will be over and others under each month. This is where you should not sweat the small stuff. Still track the categories to find patterns or constant over's/under's so you can make quarterly or yearly adjustments as needed.

Following this budgeting strategy will make it a lot less stressful. You won't have to go to dinner worrying that your blew your $10 food budget for the day. You can also easily see that once all of your fixed / must pay bills are paid you have $XXX to spend for section 4 for the whole month. Makes it easy to keep track mentally how you are doing.

This budget strategy also makes sure that you are using your income efficiently. By having a section for extra debt repayment/savings you should have a $0 balance at the bottom of the sheet. It does not have to be perfect but at least close. The $100 "wiggle room" category covers any short term overage or unexpected cost.