Why You Need a Monthly Budget, and How to Make it Stick

Unless you're one of those rare people for whom money is no object, you need a monthly budget. This is true even if you never overdraw your bank account, and if you put money into savings regularly. Why? Because a monthly budget is the single best way to make sure your hard-earned money is being used the way you want it to be used.

There's nothing wrong with having a little "mad money" to use on things like a cup of coffee while you're out running errands or the occasional sale item that's too good to pass up. But without a monthly budget, it's too easy to let these little expenses add up. In fact, the best prelude to creating your monthly budget spending a month tracking all your expenses (especially the ones you don't want to admit to). This step alone can often inspire you to find cheaper alternatives. Here are some more tips on how to make your monthly budget stick.

Update Your Spending Record Daily

By recording your expenditures every day, you're less likely to forget the pack of colored pencils you had to buy for your child's homework and the bag of cat food you picked up on the way home. If you wait, it may seem as if money disappeared from your wallet for no apparent reason.

Go Into Detail When Recording Spending

Write down what you purchased rather than where you purchased it to learn what categories account for what proportion of your spending. For example, if you write down "$16.13 - Walgreens," that could be for anything from medication to makeup. But if you write down "$16.13 - Benadryl and tissues" it's clear that the money was spent on healthcare products.

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Move Toward Thinking of Monthly Expenses

If you're paid bi-weekly, it's easy to have a paycheck-to-paycheck mindset. That makes it easy to not worry about your expensive mobile phone plan this week, because you know you'll get paid before the bill is due. Think about your expenses on a monthly basis, because your main bills, like utilities, internet, credit cards, mortgage, and phone, come due once a month. Know how much your monthly bills are on average, and how much your monthly income is in order to plan spending as wisely as possible.

Know Which Expenses Vary and How They Vary

Consider your utility bill and how it varies from month to month. Some utility companies will average a year's worth of your bills and put you on a fixed monthly bill (with any overage refunded to you at year's end, or a bill for any you owe). This can be helpful for planning, but some utilities charge a fee for this. If you don't have or don't want monthly average billing, average a year's worth of bills for planning purposes. Also know which months' utilities are highest so you can plan ahead.

Plan for Expenses You Don't Normally Plan For

Perhaps you think that planning how much to spend on Christmas gifts takes the fun out of it, but in fact it can do the opposite. By knowing how much you can spend on each person on your list, you can become more creative in your gift giving and best of all you won't be shocked when your credit card bill shows up in January. The same is true when planning for things like vacations and birthday parties for your kids.

Make a Monthly Budget

You've tracked your spending, learned how your variable expenses change over the year, and decided on a reasonable amount to spend on your child's birthday party. Take the next step and create an actual monthly budget using a free app like Mint. With Mint, you create a budget that is customized just for you, and can set up helpful extras like bill alerts so you'll never miss a payment.

It doesn't matter if you have unusual spending categories, because Mint lets you create custom categories. It even recognizes certain payments as possible bills and offers to create line items for them. Plus it integrates with your smartphone, so you can refer to your budget wherever you go. If you're worried a purchase may overdraw your account, you can check with Mint to look at your balance and any planned debits beforehand.

Having a monthly budget may seem like adding constraints, but what you're really adding is freedom. Once you know where your money goes, you can allocate it smartly and make the most of the money you work so hard for.

Start now: Sign up for Mint and get free budgeting tools and tips.