When you have a monthly budget, you have a plan for your money. This plan outlines what you can afford, telling you when it is and isn’t okay to splurge. Budgeting also helps you spot ways to curb your spending and put more money toward your short- and long-term saving goals. Whether you’re trying to get out of debt or develop a better understanding of your finances, budgeting can help.

In this budgeting guide, we cover the following:

• Why is having a budget important?
• How to create a monthly budget in 5 steps
• Budgeting tips: how to stick to a budget
• Saving tips: how to start saving
• Debt repayment tips: how to pay off debt fast
• Additional budgeting and saving resources

Why is having a budget important?

Having a budget is important because it helps you make sure your expenses don’t exceed your income. A monthly budget sets clear goals that allow you to plan for expenses and monitor your spending. This helps you live within your means and know where your money’s going, which can decrease the amount of financial stress you experience.

Why else is having a budget important? It helps you learn how to save and build wealth. If you have financial dreams of saving for a summer vacation, being debt free or owning a house, sticking to a budget can help them come to fruition.

How to create a monthly budget in 5 steps

If you’ve never budgeted before, the process can seem overwhelming. But when you break it down, how to create a monthly budget may be easier than you think. Below, we’ve outlined five simple steps to get you started.

1. Document your monthly, after-tax income

The first step of how to create a budget is to document your monthly, after-tax income. If you’re a salaried employee, your monthly income is likely fixed. If you have secondary sources of income, such as from a rental property or side hustle, be sure to document them too. If you’re an hourly employee or self-employed, you may have to do a little more research to come up with your monthly income. Take a look at your income over the last three to six months to calculate an average number.

2. List your typical monthly expenses by category

Understanding your typical monthly expenses is key to building a realistic budget. Get familiar with your fixed and variable expenses so you know what costs the same amount and what varies month to month. Common fixed and variable expenses are outlined in the table below.

Creating a budget enables you to plan for fixed expenses, such as rent and insurance payments, and spot ways to cut back on variable expenses, such as those related to restaurants and entertainment. For example, you need to pay rent each month, but you don’t necessarily need to spend $100 on takeout food each week. This is why listing your typical monthly expenses can be eye opening. Use the categories below to organize your monthly expenses and total how much you spend in each category.

3. Check if your expenses exceed your income

Now that you’ve documented your monthly income and expenses, subtract your expenses from your income. Do you have money leftover, or do your expenses exceed your income?

If your expenses exceed your income, don’t panic. It’s great that you know this; now you can do something about it. Look at your last few months of expenses and find ways to save. Ask yourself:

• What recurring, monthly subscriptions do I have? Can I go without any of them?
• How much did I spend eating at restaurants? Can I cut back?
• How many times did I buy coffee? Can I make coffee at home more often?
• What online shopping purchases did I make? Can I limit the amount of nice-to-have (versus need-to-have) purchases I make?

Cutting back your restaurant and personal spending is a good place to start. Even if your monthly expenses don’t exceed your monthly income, you can benefit from finding ways to save money. Spending $50 less at restaurants, for example, may mean putting $50 more toward your summer vacation.

4. Create your budget using expense categories

You’ve done the research, and now you can put it to use. Based on your spending habits and saving goals, assign a realistic dollar amount to each budget category below.

5. Track your spending and revisit your budget

The final step of how to create a monthly budget is to track your spending to see how it aligns with your plan. Revisit your budget goals every month; you may find that you’re overspending in one category and never reaching the budgeted amount in another category. Spotting these discrepancies can help you realize when you need to watch your spending or consider changing your budget category amounts.

Budgeting tips: how to stick to a budget

Sticking to a budget can be tough, but it’s more than possible. Below are some tips for how to stick to a budget.

Document your expenses at least weekly—if not daily

Frequently tracking your expenses gets you familiar with your spending habits. It can also help you stay on track toward your budget goals. For example, let’s say the month ends in a couple of days and you want to grab a meal from your favorite restaurant. But, because you’ve been tracking your spending, you know the expense may send you over budget so you choose to make something at home instead.

Be careful with your credit card

Do you tend to overspend when you use your credit card? If so, your credit card might get in between you and your budget goals. It may help to use your debit card or cash to make purchases, when possible, so you avoid overspending and going over budget.

Consider using auto pay for bills

This budgeting tip ensures you pay your bills on time, which also builds your credit. However, if your income fluctuates or you’re afraid the charge may overdraft your account before you can transfer money, it may not be the best option.

Use a budgeting tool to track your spending

Using a budgeting app or spreadsheet template can help you track your expenses and stick to your budget. Some of these options may even link to your banking accounts and automatically update your budget.

Separate food expenses by grocery and restaurant spending

Many people are surprised to learn how much they spend eating out each month. By separating grocery and restaurant expenses, you may identify an easy way to cut back your spending and stick to your budget.

Set a calendar reminder to reassess your budget at the end of each month

Our final budgeting tip is to take the time to see which budget categories were over or under the budgeted amount. This helps you learn your spending habits and make budget changes as needed. If you have a spouse, consider doing this assessment together.

Saving tips: how to start saving

We talked to our personal banking experts to develop a list of savings tips. If you want to get in the habit of saving or get better at avoiding common saving obstacles, explore the saving tips below. Use automatic transfers to build your savings

One of the best ways to get in the habit of saving is to make it automatic. Set up automatic transfers from your checking to savings account to grow your savings.

Save any unexpected income

Whether it’s birthday cash, a holiday bonus or a tax return credit, save any unexpected income. Or if you’re intent on paying off debt, put this extra money toward an additional debt payment.

Start small with big saving goals—because it’s better than not starting at all

It’s easy to be overwhelmed by large saving goals, but a little bit can go a long way. Even if it’s not much, use this saving tip and prioritize putting money toward your saving goals each month. Then when you have more disposable income, you’re already accustomed to setting money aside.

Separate wants from needs

A common obstacle to saving is spending too much on things you don’t really need. Next time you consider making a purchase, ask yourself whether it’s a “need” or “want.” While it’s nice to buy a coffee or new outfit every now and then, buying too many “wants” limits your ability to save.

Build an emergency fund that covers three to six months of expenses

Having emergency savings helps you pay for unexpected expenses. In case you lose your job or need a timely surgery, an emergency fund provides peace of mind and the ability to cover necessary, urgent expenses. If you’re wondering how much of an emergency fund you need, it’s best to have at least three to six months of expenses set aside for emergencies.

Plan for holiday and other big expenses

How much did you spend on holiday shopping last year? Was it more than you expected? You can use your monthly budget to prepare for holiday expenses, as well as other large purchases. If you put $50 toward a holiday shopping fund every month, you’ll have $600 saved come December.

Debt repayment tips: how to pay off debt fast

A budget can help you become debt free by outlining your monthly debt repayment goal and highlighting extra money you can put toward debt payments. You probably know you should make at least the minimum payment on your debts each month. Here are some additional tips for how to pay off debt fast:

• Consider delaying saving if you have a large debt to pay off. Debt limits your ability to save. By putting money (that you’d otherwise be saving) toward your debt, you can get out of debt sooner—which improves your ability to save and build wealth in the long run.
• Put any leftover money or additional income toward your debt. This includes the $45 left in your “Food” budget category at the end of the month, as well as holiday bonuses, tax credits, cash gifts or extra money you made from a side hustle. Over time, these extra payments can help you get out of debt quicker.
• Use the debt snowball method to pay off your smallest debts first. With the debt snowball method, you pay the minimum amount on all debts except your smallest one. For your smallest debt, pay as much as you can each month. This debt repayment method helps you gain momentum and feel hopeful about your debt-free future.

Additional budgeting and saving resources

Budgeting methods

• 50/30/20 Method (NerdWallet)
• Cash Envelope System (Dave Ramsey)
• Zero-Based Budgeting (Dave Ramsey)

Saving strategies

• Retirement Strategies by Age (Cadence Bank)
• The Ultimate Guide to Savings Accounts (Cadence Bank)

Tools and apps

• Bill Calendar Tool (Consumer Financial Protection Bureau)
• List of Budgeting Apps (The Balance)

Learn more about personal finance

Cadence Bank is proud to offer a number of personal banking services to help you reach your budgeting and saving goals. If you enjoyed this guide and would like to learn more about personal finance, check out our other insights and articles.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.