sinking fund

Budgeting for Beginners: How to Make a Monthly Budget (FREE Budget Template)

Do you constantly find yourself running out of money before your next pay day, having absolutely no clue where it went?

The issue most people have is that they don’t know where the money is going, so it feels like there is never enough.

Living without a budget is incredibly dangerous and it makes managing your money so much harder. Learning how to set up a budget is key to getting your finances in order so you can start living the life you want with financial security.

What is a Budget?

A budget is a plan for spending and saving the money you earn. It is a financial roadmap that will help you live within your means, cut back on unproductive spending, and build up your wealth.

A budget can help you make sure you always have enough money to make it through the month. A budget will also show you where your money goes all the time because guess what, with a budget, you tell your money where to go. You are in control of your money, not the other way around.

If you are looking to get your finances in order, there is no better way to start than with a budget.

Budgeting is personal…

Before we jump right into budgeting, please know that a budget is a personal thing and what works for some will not work for all, and there are multiple different budgeting methods.

Some use pen and paper while others use excel or apps. Some use specific detailed categories while others put them all under one category: expenses.

Personally, I use a pen and paper – a notebook actually. I know this sounds crazy but it works for me and I love it. I also use Excel and I’ve tried using various budgeting apps, but there is something about writing it down that makes it feel more real.

This year, I’m still going to manually write my budget but I’m no longer using a notebook. I decided to make my own budget planner and just for my awesome readers, you can download my free budget template printable.

Just click the image below and sign up to my newsletter, and you can have a copy of my simple budget template which you can use to make your monthly budget.

I set it up as simply as possible to show you just how simple and easy creating a budget can be. Because guess what else, a budget does not have to be complicated!

I highly recommend using pencil and paper for your first budget. After you get the hang of it in a couple of months, then you can switch to excel or a budgeting app. But seriously, just write it down for now.

If you have a printer, just print the template. If you don’t have a printer, don’t worry, you can just copy the outline in a piece of paper and start writing your budget.

Before you budget…

Before we dive into the budget process, I suggest you take a few minutes and look back at your spending for the previous months (except December because you might have overspent during the holidays).

This will give you the chance to figure out your fixed monthly expenses and variable expenses. This will also give you an idea of how much money you are spending in what areas, and where to make cuts so you can save more money.

You will also want to decide the time frame you will be budgeting for. Whichever is the easiest for you is what you should use – not what someone else does or says is correct. If its easier for you to budget by month go with that. If it makes more sense to go by paycheck then go ahead. The best budget is the one that really works for you.

Personally, I go by paycheck because we receive our income semi-monthly and its just easier for me.

Another really important part of budgeting you need to keep in mind is to always look forward to the next period of your budget. Don’t just spend all of the money you get for one period if you will have expenses in the next period your pay will not cover.

Now that you have your pen and paper ready, let’s get right into it. We are going to start with a general average month budget.

How to Make a Monthly Budget

Step 1: Determine your Income

This may seem like a no brainer but a lot of people don’t know how much money they actually make. Pull up your bank account or pay slips and figure
out how much each paycheck is. Write down the amounts and make a total of all your income for the month.

If you’re making a family budget, you may combine yours and your spouse’s monthly income. It doesn’t matter whether you get paid daily, weekly, bi-weekly or monthly. Just write down your total monthly income.

Include any passive income, rental or business income, or side gigs. If your income varies, estimate as best as you can, or use the average of your income for the past three months.

Write:

  • Month: January 2021
    • Income 1: ₱30,000
    • Income 2: ₱20,000
    • Total Income: ₱50,000

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Step 2: Determine your Expenses

Create a list of all the expenses you expect to have during a month. This list could include:

  • Rent / mortgage
  • Car payment
  • Utilities
  • Food and Groceries
  • Savings
  • Insurance
  • Debts / Loans
  • Family Support
  • Child’s Tuition or School Expenses
  • Eating Out / Entertainment
  • Transportation costs / gas
  • Shopping
  • Misc.

Start assigning a spending value to each category. If you’re not sure how much you spend in each category, review your last two or three months of utility bill statements, receipts, credit card statements or bank transactions to make a rough estimate.

Determine Fixed and Variable Expenses

Fixed expenses are those mandatory expenses and any other essential spending that tends to stay the same from month to month.

If you plan to save a fixed amount or pay off a certain amount of debt each month, also include savings and debt repayment as fixed expenses.

Variable expenses are the type that will change from month to month.

Depending on your situation you will have your own variation, but write everything down. I like to order my expenses with my fixed first, then variable.

Here’s how our current list of monthly expenses looks like…

Fixed Expenses:

  • Savings – ₱ (we have a set amount for savings every month)
  • Husband’s Personal Fund – ₱ (he gets a fixed amount for his personal fund per month)
  • Car Payment – ₱10,500
  • House Payment – ₱7,000
  • Family Support 1 – ₱5,000
  • Family Support 2 – ₱2,000
  • Internet – ₱2,000
  • Laundry – ₱500
  • Travel Fund – ₱2,000

Variable Expenses:

  • Donation (Tithe / Offering) – ₱ (I give my Tithe or 10% of my monthly income; my husband gives a certain amount for church offering from his income)
  • Wife’s Personal Fund – ₱ (this amount varies depending on my online income)
  • Electricity – ₱3,000 (average)
  • Water – ₱500 (average)
  • Food and Groceries – ₱14,000 (average)
  • Misc. Fund – ₱5,000 used for gas and additional food or groceries

I didn’t write down the actual amount of some categories for personal reasons, but I hope you get the idea of fixed and variable expenses here.

For some people, they include all their utility bills under fixed expenses. That’s perfectly okay. You can customize your own categories based on what works for you.

Our expenses are based on our three core values (3S) which include sharing (tithing/offering/donations), saving, and spending. Currently, here’s the percentage of our 3S’s:

  • 10% Sharing
  • 10% Saving
  • 80% Spending

If you’re wondering why I give tithes and my husband doesn’t, the answer is – he’s not yet ready to tithe. I told him the importance of tithing based on scriptures, but I don’t force him to do it. I respect him and I know that in God’s time, he will eventually understand the value of tithing.

Our income and expenses weren’t always like this. For several months, our expenses were a lot bigger than our income. When my husband lost his job and became unemployed for almost a year (plus at least 2 months of unemployment in between contracts for the past 7 years), and my online gigs being unstable, plus some unexpected medical bills of family members, our expenses and bills piled up during the last three years until nothing was left in our savings. We also incurred debts from my family and some from my credit cards. It was a tough time.

By God’s grace, with my husband’s new employment last year, we managed to pay the bills and pay off most of our debts.

We started building up our emergency fund during the second half of 2020, but something came up (a family member was hospitalized) and we had to use our entire emergency fund savings to help pay the hospital bills.

We pray that this year will be better in terms of our finances (and of course, in all aspects of our life including our health). If things go well, our goal is to start building our savings fund again for our short-term and long-term goals.

We’re also grateful that we’ll be done paying our car loan by August this year, and once it’s completely paid off, we’ll start saving up for our dream house.

It sounds scary and I don’t know when we’re ever going to have our dream house, but we’re looking forward to it. We believe that nothing is impossible with God, and if it’s his will, we know that He will provide a way for us to have it when the time is right.

Step 3: Total Your Monthly Income and Expenses

Calculate your total income and expenses. Then, subtract your total expenses from your total income.

For example:

  • Total Income: ₱50,000
  • Total Expenses: ₱48,000
  • Difference: ₱2,000

Income – Expenses = + (Positive)

If your income is higher than your expenses, you are off to a good start. This extra money means you can put funds towards areas of your budget, such as savings or paying off debt.

Income – Expenses =  – (Negative)

If your expenses are more than your income, that means you’re spending more than you earn. The best way to adjust your budget is to decrease the amount that you’re spending each month on things you don’t absolutely need. Needs should always come first when constructing and maintaining a monthly budget.

How to Cut Back on Expenses 

Here are some of the things we did to cut back on our expenses:

  1. We cancelled Sky Cable (saved ₱500/month)
  2. We cancelled Sun Cellular postpaid plans (saved ₱1,000/month)
  3. We cancelled PLDT TelPad (saved ₱500/month)
  4. We reduced our AC usage from 12 hours to 8 hours (saved almost ₱1,000/month)
  5. We started paying our utility bills through Shopee in November (and we have saved almost ₱1,000 from our bill payments)

Income – Expenses = 0 (Break even)

If you are breaking even, that means you have just enough income to cover your lifestyle and are living within your means. However, you are leaving yourself zero margin for error to cover any emergencies that could occur. In this case, consider adjusting your budget a bit or finding ways to lower your monthly expenses to give yourself some wiggle room.

Watch this video on how to budget money.

Step 4: List your Financial Goals

Most personal finance bloggers or advisers would usually have this part on Step 1 or 2, but I intentionally put it on Step 4 because I don’t want you to delay or put off making your first budget just because you can’t think of your financial goals yet.

So far, you have an idea of what each section of your budget looks like – monthly income, fixed monthly obligations, and variable expenses.

Now, it’s time to establish your financial goals. This is important because it helps you put a plan in place that prioritizes what’s most important to you.

Examples of financial goals can include getting out of debt, paying off your car, saving for a down payment on a house, or saving for retirement. Think about what you want for your personal financial life and set some goals.

You may want to ask these questions to yourself:

  • Why do you want to save?
  • What are you saving for this year?
  • What are you saving for in the next 5, 10, or 20 years?

In our current budget, we set aside 10% for savings, and we divide it into 4 sub-categories based on our priorities this year.

  1. Emergency Fund
  2. Sinking Fund
  3. Retirement Fund
  4. College Fund

Our short-term goals include saving up for our emergency fund and sinking fund.

An emergency fund is simply money you’ve set aside for unexpected events such as job loss, major home or car repair, or other emergency situations. Having an emergency fund provides peace of mind and can help prevent you from going into debt.

Financial experts suggest having an emergency fund of at least three to six months of your salary or at least your living expenses. If you’re just starting out, you can set an initial emergency fund goal of ₱10,000 and just try to raise it when you have the funds.

A sinking fund is money that you save each month towards a one time or irregular predetermined expense such as car insurance, tuition fee, birthdays, or holidays. With a sinking fund, you intentionally set aside money each month toward a big financial expense.

For instance, you’ll set up your child’s tuition fee sinking fund goal of ₱20,000 and put in ₱5,000 towards it each month.  By the time your child’s enrollment arrives, you’re not scrambling to pay for everything because you’re well prepared.

Our sinking fund includes our upcoming and irregular expenses this year including:

  • PhilHealth and SSS Contributions
  • Health Insurance
  • Life Insurance
  • Car Insurance, Registration, and Maintenance
  • Macey’s Tuition Fee
  • Birthdays

For our long-term financial goals, we have many, but this year, we can only save a very small portion of our budget for our retirement and college fund while we’re still building our emergency fund and sinking fund. Hopefully, when we get an increase in our income, we can also start increasing our savings and adding more items in our list of financial goals including our dream house, a bigger car, and travels/vacations. We haven’t been able to travel outside the country and that’s something we’d like to experience in the future, God willing.

What are your financial goals?

I’ve shared some of our short and long-term goals. Now, it’s your turn to write down yours. Don’t skip this part because listing your goals can help you maintain perspective and prioritize your spending as you create your short-term or long-term budget plan. Plus, according to some studies, you are 42% more likely to achieve your goals if you write them down.

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Step 5: Put your Budget into Action

Now that you have a better understanding of your financial situation, it is time to put your budget into action!

Be sure to monitor your budget closely and make adjustments as needed. Adjustments can include increasing the amounts you can save, paying off more debt, reducing your variable expenses or making more money.

A good way to fail at your budget is to not make adjustments. Each month is different and your budget needs to reflect that. Just making a budget will not do any good if you do not follow it. When it comes to following a budget, the most important thing you need is DISCIPLINE. This is what our family struggled with the most. After a while it does get easier and saving more and spending less will become habit.

It’s also a good idea to have a monthly (or even weekly) discussion with your spouse or partner to look at and discuss your personal finance goals for the upcoming month.

Let’s recap…

Here are the steps to make your monthly budget:

  1. Determine your Income
  2. Determine your Expenses
  3. Total Your Monthly Income and Expenses and Get the Difference
  4. List your Financial Goals
  5. Put your Budget into Action

If you’re just beginning and have never created and maintained a monthly budget, then you’re not alone in thinking this can be overwhelming. The first few months may be tough, but it can put you on the road to a much better, organized, and happier personal finance situation.

I know you can do it. I believe in you and I’m cheering you on to reach your financial goals.

Don’t forget to sign up to our newsletter to get your free copy of my simple monthly budget template and to receive our latest updates and tips. 🙂 Thanks for reading and God bless!

5 thoughts on “Budgeting for Beginners: How to Make a Monthly Budget (FREE Budget Template)”

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