How to Plan a Monthly Budget

Most often, when couples sit down to discuss financial issues, they plan annually. But a monthly budget based on the annual plan is also useful, as it tends to contain fewer uncertainties. A monthly budget is particularly useful for those that live on a variable income. When planning for monthly income and expenses, the key is to identify which expenses can be scaled proportionately to income.

Items you will need

  • Spreadsheet program such as Excel or calculator and paper
  • Bank and credit card statements for the last twelve months

Your Monthly Budget

List and categorize your expenses. Using your statements, categorize each transaction. Common expense categories are rent (mortgage), food, household, auto, business expenses, medical, insurance, taxes, personal grooming, entertainment, loan payments, and home improvements. Those with children may include childcare and school supplies. Find the monthly average for each category by totaling them up, and dividing by 12. For those expenses that vary over the year, such as heating and cooling costs, adjust as needed.

Categorize fixed and variable expenses. Fixed expenses are those that must be paid regardless. They may not be the same amount every month. The key is to determine which monthly expenses you have no, or limited control over, except to eliminate or renegotiate. Rent, utilities, gym memberships, and cell phone plans are examples. Variable expenses are those that can be decreased easily. Groceries, clothing, and personal grooming expenses are examples. Some may not fit neatly into a category. For example, fuel for your car could be reduced, but it would be difficult to use less fuel without changing your life significantly. For these expenses, use your best judgment. If you’re unsure how to categorize, ask yourself how much reducing or delaying the expense would alter your life.

Categorize variable expenses into luxury and necessity items. Again, all expenses may not fit neatly into a category, but do your best. Dry cleaning expenses, for example, may be a necessity, but could be delayed for awhile.

Budget variable expenses for the month. Variable expenses can be reduced as needed depending on your income. Start with luxury items, such as dining out. If further reductions are necessary, tackle your grocery receipts to see if you can reduce your spending by forgoing some items. Try to make it about more than just reducing expenses. Have you been meaning to give up soda? No need to wait until Lent. Lean months are a perfect opportunity to so.

Budget for unexpected expenses. It is difficult to know how much to set aside for unexpected events. A rule of thumb is to set aside the amount of your auto insurance deductible. While the unexpected event may have nothing to do with your car, this amount is used as a guideline because it is how much you ought to be able to put your hands on, in a pinch.

About the Author

Sara Huter is a professor of economics. Her background also includes risk management in the banking and energy industries with expertise in credit scores. Huter received an M.B.A. in finance from Texas A&M University and a B.S. in information systems from Kansas State University. She has been writing for over five years with work at, and