Learn How to Create a Monthly Budget in 5 Steps

A monthly budget is a basic tool that everyone should manage as soon as they receive their first income, regardless of age or profession. It's an organized way to manage your finances and will help you achieve your short, medium, and long-term goals.

That’s why today we’re sharing a guide to creating a personal budget, so you can organize your finances and manage your resources efficiently. This is the first step toward achieving those personal goals you’ve put on hold due to a lack of money, such as starting to invest in the stock market!

What Is a Personal Monthly Budget?

A personal monthly budget is a financial plan that organizes all personal income on a consistent basis, aiming to allocate and set amounts for each expense, analyzing priorities, and seeking to optimize the use of resources.

Tip: The success of creating the habit of making a monthly budget will depend on it connecting with a motivational purpose, answering the question: What will I use the money I save for? What is my goal? A trip, a master’s degree, an apartment, a car, or starting in the world of investments. By emotionally connecting with your goal, it will be easier to make it a habit.

The tool consists of three essential elements:

1. Income: This includes all the resources that enter your wallet each month, from your salary to extra money you can earn from other jobs or sales of goods.
2. Expenses: These are the outgoing resources, which we will divide into two categories:

Fixed Expenses: Outflows of money that we cannot control or alter, are mandatory, such as rent payments, loan payments.

Flexible Expenses: Outflows of money that we can control, are optional, such as very expensive meals, unnecessary luxuries or whims that are relative to your quality of life.

1. Savings: This is the amount of money you will obtain as surplus each month. It is the result of creating a personal budget; therefore, it should be considered a fixed expense focused on a personal goal.

Benefits of Creating a Personal Budget

Creating a monthly budget can help you:

1. Organize yourself to achieve medium- and long-term goals;
2. Identify and adjust unnecessary expenses according to your income;
3. Reduce and eliminate debts;
4. Analyze if you need more sources of income;
5. Keep your finances under control: a good habit for this year.

But most importantly, it can ensure financial stability in the future, as we will see below:

The Main Advantage of Developing a Monthly Budgeting Habit

The main advantage of creating a monthly budget is that it allows you to allocate money for savings and investments that will help you achieve financial freedom in the long run and secure capital for your retirement. Because in the end, have you ever stopped to think: At what age would you like to stop working? As a consequence of having made good financial decisions in your youth.

The first step to stabilizing your future is to plan and optimize your resources now! Start with the question: Do you know where your money goes each month? Budgeting will allow you to track it.

Accounting for all our income and expenses will also allow us to have an emergency savings plan, which, as we saw in a previous post, there are investment risks that we cannot control and that every investor must and can face, check out that post.

Without a doubt, we all seek a more stable future, and we know that one of the best ways to make your money work for you is by investing in the stock market. That's why we seek to democratize access to investing in the US stock market and offer the tools you need to achieve financial freedom.

Now that you have a clear idea of what to spend your potential savings on, let’s move on to the 5 steps to creating an appropriate personal budget.

How to Calculate a Personal Monthly Budget

The first step is to track all your daily transactions. Currently, the best and most recommended way is through apps focused on financial control.

Tip: How to choose the best app for budgeting? Look for one that allows you to make a detailed daily record quickly and intuitively, so you can create a habit more easily.

By collecting your expenses in detail, you can identify which expenses you could reduce, and thus create a personalized budget tailored to your daily life.

Now let’s get to work with the 5-step guide to creating a monthly budget:

1. Identify Your Net Monthly Income

First: How much money do you bring in each month? Add them all up, looking for consistent income sources: from your salary to that extra money, such as income from a part-time job, rental income, among others.

2. Identify Fixed Expenses

After reviewing all your income, it’s time to look at the outflows.

You must separate fixed expenses from optional ones, referring to essential expenses such as food, mortgage or rent payments, car payments, utilities, mobile phone bills, gym memberships, children’s school expenses, transportation costs, and more.

These are non-negotiable outflows that keep your life running.

3. Identify Non-Fixed Expenses

It’s time to identify the monthly leaks—these are the expenses that prevent you from making it to the end of the month.

Also known as flexible or discretionary expenses, these are things we like but can do without. Remember that they can be relative to each person. Take the time to identify all these small expenses, as they determine whether you can save and have that surplus money each month.

Try to anticipate all of them, make a list of expenses for birthdays, credit card bills, outings with friends or family, and purchases of other goods (video games, books, toys, clothes).

With these two elements clear, you can start allocating your resources for each expense.

4. Assign an Estimated Amount to Expenses

With the small expenses identified, create your budget: allocate and define applicable monthly resources. In this step, balance with priorities is key. Without strict deprivations, you should have expenses for outings with friends or family, but you should also stop spending on other senseless things. That’s why it’s vital to have a purpose for your savings.

The idea here is to allocate a defined amount for each variable expense, including unexpected ones, with the intention of maintaining this regime while visualizing your emotional goal. If you're not sure how much to allocate for variable expenses, analyze how much you've spent in the last three months and use it as a reference limit.

5. Make Monthly Budgeting a Habit

Recording each of your expenses won’t be easy at first, which is why choosing an intuitive and quick app is important. Having a goal for your savings and thinking about your future are the motivations that will drive you to create this habit.

Visualize: Wouldn't you like to travel the world without worrying about money? Spend your retirement years on vacation? Start saving now: create a monthly budget.

Did you know that a study by the University of London found out how long it takes to create a habit? It takes at least 66 days of repetition to create a habit, so your brain becomes programmed and does it automatically without much effort.

In conclusion, starting a personal budget today is thinking about your future, giving balance to your lifestyle without feeling deprived. A personal budget will vary from person to person, so feel free to adjust your amounts as your goals change.

It’s up to you to make your money work: join the world of online investments!

Our next post will be more specialized, covering a popular topic: Cryptocurrencies—everything you need to know before investing. Don’t miss it!