How to Create a Monthly Budget: Step-by-Step Guide With Real-Life Example

Money management is crucial in today's fast-paced world. By creating a budget, you can identify where your money is going and steer clear of spending on unnecessary items. Budgeting can help alleviate stress and prepare for the future. In this blog, we will learn how to create a monthly budget and explain it with an easy-to-understand Real-life example that anyone can relate to.

What is a Monthly Budget?

Budgeting is the creation of planning how you will spend your income. It identifies your income and spending. Help to stay within your financial limits . Also budgeting is given financial clarity and how to avoid unnecessary debt.

There are some benefits of monthly budgeting : reduce overspending, tracking money , help in emergency time etc. It's the first step to bring financial peace.

Step-by-Step Monthly Budget Example with Real-Words Case Study

Meet , 

Raj is a professional who has been working for 26 years and has a step-by-step experience. 

Raj and his wife are currently living in Delhi. Raj works for an IT company and receives a monthly salary of Rs. 40,000. Although he earns a decent amount, he still has little or no money in his account at the end of each month. His lack of savings caused him to feel stressed. 

So, Raj decided to start budgeting monthly income.

Let’s see how he does it.

Step 1 : 

Note Down Your Monthly Incom

Finding out how much money you make each month is the first and most crucial step in creating a budget. Making a proper budget is tough if you do not know how much money you make. Income can be defined as any regular stream of money, such as a wage, business profits, or other sources.

Raj’ total income = ₹40,000 /month 

He can only utilize this ₹40,000 for all of his expenses, savings, and investments because he doesn't have any side income.

Step 2:

List All Monthly Expenses

Now you make a list of all your regular expenses. These are divided into two categories: fixed expenses and variable expenses. 

• The fixed expenses remain the same every month. 

• The variable expenses change each month.

🔹 Fixed Expenses :

         •    Rent
         •   Loan EMI
         •    School fee

🔹 Variable Expenses:

          •   Grocery

          •   Electricity
          •  Mobile recharge
          •  Travel
          •  Medical

          •  Entertainment

Raj sat down with a notebook and listed out all her fixed and variable expenses.

_____________________________________

No.   Category                  Monthly cost(₹)

_____________________________________

1.  Rent                                                  10,000

2.Grocery (Food & Household)          5000

3.Electricity+ Water                             1500

4.Mobile +Internet                                 800

5.Travel (Metro & Bus)                        2000

6.Snacks                                                 1500

7.Shopping (Raj and his wife)           5000

8.Subscriptions (OTT/Apps)                500

9.Gas cylinder or stove                        1000

----------------------------------------------------Total                                                    27,300

-------------------------------------------------------

So, Raj's monthly expenses add up to ₹27,300.

Step 3:

 Set Savings Goals

Now that he knows her expenses then he calculates her leftover money:

• ₹40,000 (income) – ₹27,300 (expenses) = ₹12, 700

Then he is clear about how much money they actually have.

The third step is to set saving goals. Raj sets clear saving targets in the below.

• ₹6,700 to go into her Savings Account.
• ₹3,000 into an Emergency Fund.
• ₹3,000 for unplanned expenses or small luxuries (buffer money).

Now, he feels more confident knowing her savings are growing and her expenses are controlled.

Step 4:

Track Daily Spending

To avoid overspending, Raj decides to take control of his finances by tracking his daily expenses. He uses a free budgeting app to stay organized sometimes it’s Google Sheets, or other times she uses apps like Wallet, Monefy, or Spendee etc.

Every time he spends, even on small things, he logs it right away. Here’s how her spending looked during the first few days of July:

_____________________________________

Date                     Item                      Amount

_____________________________________

1st July      Milk & Vegetables              ₹150

3rd July    Mobile Recharge                ₹299

5th July    Coffee with Friend              ₹120

8th July     Auto Rickshaw Ride         ₹80

_____________________________________

By keeping track of every rupee he spends, he not only understands where his money is going, but also becomes more mindful about his spending habits.

Step 5: 

Review at Month-End

At the end of mouth , Raj compares his budgeted expenses vs actual spending.

Raj asks his self: 

• Did I stick to my plan?
• Where did I overspend?
• Can I reduce anything next month?
• Did I reach my savings target?

One month he realized he spent ₹900 on coffee outings. So next month, he reduced that to ₹300 by making coffee at home.

This helps you learn from mistakes and plan better next month.

Results After 3 Months of Budgeting

• Raj saved ₹24,000 in 3 months.
• He built an Emergency Fund of ₹9,000.
• His financial stress reduced.He was able to plan a short weekend trip using his buffer money .
• Most importantly, he felt in control of his money and could see real progress toward his goals.

Budgeting Mistakes to Avoid

1. Don't ignore small daily expenses.Small expenses like tea, snacks, auto fares, or online subscriptions may seem small to you. But when totalled at the end of the month, they add up to a significant amount. So, don't ignore them and include them in your budget.

2. Don't Forget Festivals and BirthdaysFestivals, birthdays, anniversaries, and special occasions come every year. Failing to include these expenses in your budget can lead to last-minute financial stress. It's always best to set aside a small amount.

3. Make a Budget That Suits Your LifeEveryone's income and lifestyle are different.If you blindly copy someone else's budget, it won't work for you. Create your own personal budget based on your needs, goals, and priorities.

4. Don't spend all your income just because it's available.Don't spend just because you have money. Set aside a portion of every income for savings and future goals. Spending all your money can cause problems in an emergency.

Final Words: 

Budgeting isn’t about holding yourself back it’s about taking control. Just like Raj, you too can build a simple, practical budget that actually fits your life. The secret? Be honest about where your money goes, keep track regularly, and try to improve a little every month.