Your guide to setting a monthly budget

Creating a monthly budget. It’s one of the first steps in getting your personal finances on track. But many see it as too daunting a task, while others see it as a bunch of busywork that isn’t worth the trouble. They think, “If I make it through the month and have money left over, I don’t need a budget, right?”

Such thinking might work for now, but it won’t help you reach your long-term goals. A budget helps you see where your money is going and whether you’re using it to take control of your financial decisions.

5 steps to setting a monthly budget

Think of your budget as a road map for your money. It lets you see where you are in your journey and helps you reach your next destination. With a budget, you can get a better idea of how each dollar should be used to make the most of your income.

Your monthly budget planner sets the tone for your money—and helps ensure your priorities are taken care of. Here are some practical steps to make a monthly budget.

1. List your income sources

Start by listing your sources of income. Write down how much you receive and the dates you expect to get paid.

• List job and other steady income sources. Include your paydays and how much is deposited into your bank account. Also, if you receive regular payments from a pension, trust, or other source, note those as well.
• Add variable or irregular income sources. Use an average amount you can expect each month based on the previous year’s income. With irregular income, it helps to pick one day each month as your “payday,” a consistent time to total what you’ve earned and plan your budget.
• Chart it. A calendar can help you visualize the dates you expect to receive money. Green is a good color for denoting paydays.

Once you know how much is coming in, you’ll be better prepared to make decisions about where that money should go—and you’ll know exactly what you’re working with. Say you take home $2,000 twice a month from your job, plus another $500 from freelance work. Combined, you have $4,500 to work with when planning your monthly budget.

2. Review your spending

To make a solid monthly budget, start by reviewing where your money goes. Download and review your bank and credit card statements for the last two or three months, then:

• Think about common budget categories you’re likely to spend money on. These items might include utilities, groceries, gas, travel, entertainment, clothing, and personal care.
• Mark or label each expense by category—whether you’re using a spreadsheet, paper printouts, or budgeting software.
• Decide how each expenditure fits within your budget categories.
• Note when your regular bills are due. If you’re using a calendar as a visual aid—or if you’ve plugged your income and expenses into a budget spreadsheet—use symbols, formatting, or labels to distinguish income from expenses.

Reviewing your spending can be an eye-opener. For instance, you might find that you’re spending $250 a month on takeout, $100 on streaming services, and $300 on impulse purchases at big-box stores—none of which felt significant in the moment, but can add up quickly.

3. List your financial priorities

Next, list your financial priorities. Maybe you want to pay down debt, save for a vacation, or put money aside for retirement.

All these priorities are important, but some matter to you more than others. Rank them, starting by paying yourself first by allocating money toward retirement and emergency savings. Put needs like housing, groceries, insurance, and utilities near the top of the list.

By listing your priorities, you’re more likely to make a monthly budget you can stick to—one that reflects your goals, not just your spending habits. Compare what matters most to you with where your money’s actually going. You may find you’ve been throwing money at things that don’t really matter. If your top goal is building an emergency fund, for example, you might decide to cut back on travel and redirect $200 a month to savings instead.

4. Align your expenses with your income

Now we get to the meat of setting a monthly budget. Look at when your income hits your bank account and how that timing lines up with your bill due dates.

Keeping regular routines, like setting a weekly grocery budget, can help you pace your spending and avoid running short of money before your next paycheck.

Many bank accounts allow you to create subaccounts to save for things like a vacation or a down payment. Set up automatic transfers from your checking account to those subaccounts based on when you get paid and when your bills are due.

Go through your list of priorities and budget categories and assign dollar amounts to each based on when you’re paid. If you schedule automatic transfers for rent and utilities on the first of the month, your second paycheck can cover groceries and other discretionary spending.

5. Tweak your monthly budget as needed

Your budget isn’t set in stone. As your spending patterns or priorities shift, adjust your categories to reflect what matters most now.

Consider reviewing your monthly budget each year to see if you need to make a major overhaul. If paying down debt was one of your budget priorities and now you’re debt-free, you’ll need to reevaluate your situation and determine what to tackle next and how to allocate your newly available money. For example, if you’ve been budgeting $400 a month for groceries but consistently spend only $325, you might shift the extra $75 toward saving for a vacation or repaying debt.

The bottom line

Your monthly budget isn’t a millstone dragging you down. Instead, it’s a reflection of your priorities and goals. Take time to review where you are and then use your budget to create a road map to where you want to be. With a budget, you’re the director of your financial resources, putting your money to work to help you reach your goals.