How To Budget Monthly Expenses (2024)

A spiral-bound notebook saved my financial life.

Yep, one of those notebooks you can get for under $.25 during back-to-school sales set our family on a course to secure financial footing.

So how did this cheap little notebook do these magical things? Well, it taught us how to budget monthly expenses.

But before I get to how it did that, let’s take a step back in time.

Prior to my spiral notebook, my husband and I “tried” to budget our monthly expenses through the “plot-all-your-monthly-expenses-into-a-spreadsheet” method. We would spend time every January computing our yearly expenses on heating, telephone, clothing, internet, groceries, etc. And then we would add line items for things like car repairs, car insurance, and home repairs. And like most people, we would total everything up and then divide the number by 12 for our monthly total.

This should work, right? You create a slush fund for those little expenses and then pull from it when the bill is due. In theory, it’s perfect. In real life, not so much.

Since it wasn’t a real expenditure, if we had extra every month, we found other ways to spend the money. Or if we did put money aside, the inevitable would happen and the expense was more than the slush fund…and it got put on the credit card anyway. And since that line item is blown, let’s just throw the baby out with the bathwater.

Sound familiar?

It wasn’t until reading Dave Ramsey’s Total Money Makeover and his idea of throwing out the twelve-month budget and replacing it with a monthly budget, that the lightbulb came on for me. Instead of living within a semi-fictious budget, the monthly budget would force us to make decisions where the rubber met the road, at the time they happen.

Step #1: Write down your take-home income for the month. This is the number after taxes, but before health insurance and retirement savings.

Step #2: Write down all your regular non-negotiable expenses for the month (these are recurring expenses). This can include mortgage/rent, health insurance, disability insurance, retirement savings, childcare (if you are working), tithe and charitable giving, and ESA savings.

Step #3: Write down all your regular negotiable expenses for the month (these are also recurring expenses, but have more flexibility). This can include utilities, gas, groceries, wine/beer, eating out, entertainment, clothes, haircuts, vacation savings account, birthday savings account, and christmas savings account.

Step #4: Now, add in any extra non-recurring expenses that will only happen that month. These can include dental bills, car insurance, car repairs, home repairs, Dr. visits, kid’s activities, etc.

Step #5: Add up all of your expenses. If your expenses are below your monthly income, great. If not, you’ll need to start cutting line items or decrease the amount in an line item to make your budget/income equal out. (See my 9 Tips for Cutting Costs.)

And to make it easier, you can even use my FREE monthly family budget planner.

While not always possible, the goal is to not “tap” into savings or put expenses on a credit card.

Is this a HARD exercise? Absolutely. I’ve done this and it isn’t any fun to have to forgo a haircut or not be able to go out to dinner with your girlfriends because your family budget for a month doesn’t include those things.

But remember, these cuts are only short term. Soon a new month will arrive, with a new set of income (and expenses) and decisions to be made. You may find you lived without cable (and liked it) or that two extra weeks between haircuts isn’t life changing or that no one misses taking piano lessons. And those expenses can be cut permanently.

It’s hard to be responsible. Period. But knowing how to budget monthly expenses (and pay them off) means you will have a secure long-term financial household. And that is worth way more than a latte a week.

How about you? How do you budget monthly expenses?