7 Budgeting Tips That Help You Build a Simple Monthly Plan

Most budgets are built for an imaginary month, one where every paycheck is the same size and every bill is a round number. Real months are lumpier.

In 2019, the JPMorgan Chase Institute studied bank account records from families across the United States. They found that, on average, families had a big income swing, a spike or dip of more than 25 percent compared with their usual month, in almost five months out of the year. Families with a median level of ups and downs saw their income change by about 36 percent from one month to the next. The researchers also estimated that a family needs roughly six weeks of take-home pay in easy-to-reach money to handle an income dip and a spending spike at the same time, and about 65 percent of the families they studied did not have that much. Those were Chase customers, a slice of all households, and the data ran through 2018. So I treat it as a strong hint, not a final answer.

It changed how I think about a monthly plan. A simple plan still has to bend. These seven tips are about building one that does, without turning your month into a spreadsheet project.

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1. Build your plan around a baseline month, the lower end of what you reliably bring in, so surprises tend to be good ones.

Look back at the last six to twelve months of income. Do not plan around your best month. Pick a number near the lower end of what you can count on, and treat that as your baseline. If your pay is steady, this is easy. If it varies, the baseline matters even more.

Anything above the baseline is a bonus. You decide ahead of time what happens to it, which is the job of tip six. This way, a good month does not quietly raise your spending, and a slow month does not wreck the plan.

I started doing this when my own income bounced around, and it took a lot of dread out of the first week of each month.

Write down your income for each of the last six months, then circle the lower end of the range as your baseline.

2. Put your fixed bills on one page with their due dates, since they are the backbone of the plan.

Start with the costs that do not change much: rent or mortgage, utilities, insurance, phone, loan payments, and subscriptions you plan to keep. List each one with its amount and its due date.

Add them up and compare the total with your baseline. If the bills take most of it, that is useful to know. It tells you where your flexibility really lives.

If a few due dates fall at awkward times, ask the company whether you can move them closer to payday. Many will agree.

Make a one-page list of your fixed bills with amounts and due dates, and total them.

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3. Give every dollar of your baseline a job in just three buckets, so the plan stays simple.

A short order works better than a long list. Try three buckets: first, bills and essentials. Second, savings and cushion. Third, spending money for everything else. Pay the first two first, and spend what is left in the third.

You can add detail later, if you want to. But a plan with three buckets is one you will actually look at. Many people who start with twenty categories quit by the second month.

Give your spending bucket a weekly number, so you can check it in a few seconds. For example, if you have $200 for the month in that bucket, that is about $50 a week.

Split your baseline into three buckets, and write the weekly spending number on a sticky note.

“A good monthly plan does not need to predict every month. It needs to survive the ones it missed.”

4. Mark your swing months in advance, because many income and expense spikes are predictable.

Chase found that some swings follow the calendar. Months with an extra paycheck, tax refunds and tax bills, and the holiday season all showed up in the data. Families had about a 30 percent chance of an income spike in December and in March. Your own list will differ, but you probably have swing months you can name.

Look back over the last year and mark them. Which months had a bonus, a refund, a big bill, a yearly fee, back-to-school costs, or a slow stretch at work? Put them on your calendar.

Knowing a swing month is coming turns a surprise into an item on your plan.

Mark the three months from last year that felt most unusual, and write down what caused each one.

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5. Build a swing cushion in your checking account, one small step at a time.

The researchers estimated that about six weeks of take-home pay in easy-to-reach money could weather an income dip and a spending spike at once. That is a lot for many families, and I do not want you to feel discouraged by the number. Treat it as a long-term target.

Start with one week of bills. Keep it in checking, or in a savings account you can reach quickly. Add a little each payday. Each added week makes a bad month less scary.

This cushion is different from a larger emergency fund. It is the first layer, which keeps normal ups and downs from becoming a crisis.

Calculate one week of your essential costs, and set up a small automatic transfer toward that amount.

6. Write a flex rule for good months and tight months, so you decide once instead of every time.

When income lands above your baseline, what will you do with the extra? A simple rule might be: half to the cushion, half to a goal or a treat. When income lands below your baseline, what will you trim? Perhaps the spending bucket drops by a set amount, and extra savings pause for a month.

Write both rules down. In the moment, you will be tempted to improvise. A rule you made calmly beats a choice you make at the end of a long day.

Keep the rules short enough to remember. If you cannot say them in two sentences, trim them.

Write one sentence for a good month and one for a tight month, and keep them with your plan.

7. Do a twenty-minute check each month and change just one thing.

A plan that never gets updated slowly drifts away from your life. Pick a date near the start of each month. Look at last month’s real numbers, compare them with the plan, and decide what to adjust.

Change only one thing at a time. Maybe it is the spending bucket, a due date, or the cushion amount. Small changes are easier to keep.

Over a few months, your plan becomes much more accurate, because it learns from your real life. That is how a simple plan becomes a dependable one.

Put a repeating twenty-minute monthly check on your calendar, and decide the first thing you will review.

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