How to Stay on Top of Your Finances With a Monthly Spending Plan

Careful analysis prevents surprises

Mixed race woman paying bills on digital tablet
••• JGI/Jamie Grill / Getty Images

Just about everyone worries about their finances from time to time. Whether you're just starting out in your first real job, dealing with child care and college expenses, or are in retirement mode, staying on top of your finances is a priority.

One of the most effective ways to accomplish this is by making a monthly spending plan so you know what you are spending, where you are spending it, and whether you're spending on things that don't really enhance your quality of life. Making a monthly budget plan takes about an hour.

Determine Your Earnings

Calculate how much money you expect to make each month after taxes and other payroll deductions. Only include income sources that you know you can depend on. Also, be sure to make these calculations before the month begins in order to be sure that you will have enough time to get it done.

Monthly Expenses

Make a list of all of your regular monthly expenses. Include rent or house payment, car payments, minimum payments on debts, food, all types of insurance, and utilities. Don't forget about the money you regularly spend on fun things like eating out, entertainment, or hobbies.

Subtract Monthly Expenses From Earnings

The result is how much you can expect to have after covering all your regular monthly expenses. These types of expenses will include regular monthly expenses such as rent, utilities, car payments, and so on.

Subtract Any Extra Expenses

Review your plans for the upcoming month and make a note of any extra expenses you are likely to incur. This could include scheduled car or home repairs, clothing, medical or dental bills, gifts, trips, parties, extra meals out, and holiday-related purchases.

Build in a Cushion

Look at how much money you expect to have left after covering all of your anticipated expenses and decide if what remains is enough cushion against unexpected expenses. If you’re not sure how much extra to build in, 10 percent each month is a good rule-of-thumb.

Rework Your Budget

Now comes the hard part. If your budget comes out on the negative side, go over your regular monthly expenses again and look for places to make cuts. Try dining out less, skipping that extra cup of coffee, or shopping for discounts at the grocery store or picking up unbranded products. Be creative, and keep at it until your budget works.

Invest in Yourself

If you find you have money left after you check all these boxes, think about using some or all of it to pay down debts or add to a savings account or investment portfolios.

Be Flexible

Change your spending plan if your circumstances change. This may include spending more one month to pay down debts, covering a higher utility bill one month, or any unforeseeable emergency expenses. No two months are exactly alike, so always be ready to make adjustments if things change.