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Key takeaways
- To create a budget, you need to factor in all of your monthly expenses, such as housing, food, transportation, child and pet care.
- Budgeting for variable expenses, such as food, entertainment and travel can be challenging, but it can help you to average the costs for the past year.
- Tracking your actual spending compared to your budget can help you make adjustments to ensure you’re staying within your means.
Creating a monthly budget is an essential strategy to help you manage money and save for financial goals. To create a budget, though, you need to know what monthly expenses to factor in. Keeping track of all monthly expenses can ensure that the expenses don’t exceed your monthly income, so you can comfortably pay bills and know how much money to put aside for saving.
Types of monthly expenses
Expenses in your monthly budget can be fixed or variable. The key difference between them lies in their predictability and frequency.
- Fixed monthly expenses. These are costs that remain constant from month to month. Examples include rent or mortgage payments, insurance premiums and subscription services. These expenses are predictable, making it easier to budget for them since you know the exact amount you’ll need to set aside each month.
- Variable monthly expenses. These expenses fluctuate from month to month and are often discretionary in nature. Examples include groceries, utilities, entertainment expenses and travel. Variable expenses can be more challenging to predict, but you can average out the total cost of these expenses for the year and allocate that total across 12 months.
Examples of monthly expenses to include in a budget
1. Housing
Housing expenses frequently take up the largest chunk of monthly expenses and include monthly mortgage or rent payments, depending on whether you own or rent your home. It also includes any other extra costs for maintaining and using the home. Homeowners, for example, pay property taxes in states that levy them. Property taxes are often escrowed as part of your mortgage, so don’t include it as an extra amount if the full amount is already recorded in your monthly payment.
Some other maintenance costs include plumbing fixes, landscaping, gutter cleaning and an occasional fresh coat of paint. You’ll need to estimate your maintenance costs to put them in a budget since all of those are likely not fixed, recurring amounts each month. Routine maintenance can prevent simple fixes from becoming much bigger, more costly problems later on.
Renters likely don’t have to factor in maintenance costs, since the landlord pays for upkeep.
2. Utilities
Utilities, along with mortgage or rent payments, are necessities and typically take up the largest portion of one’s budget. U.S. households spent an average of $3,948 in 2023 on utility bills per month. They include:
Natural gas, propane, heating oil
U.S. households that aren’t heated with electricity typically rely on one of three types of fossil fuels for heating: natural gas, propane or heating oil. Of these, natural gas is the most popular, though heating oil is commonly used in the Northeast.
Regardless of which fuel you rely on, the bill is likely to be much higher in the winter months, when heating is required. Switching to an energy-efficient, smart thermostat and/or enrolling in a budget billing plan, helps offset high winter heating costs of natural gas by distributing the estimated yearly gas cost more evenly across each month.
Budgeting for propane or heating oil can be more challenging, because the amount of the bill is typically per delivery, not monthly. Propane and heating oil aren’t connected through a network of pipes, so they require paying for scheduled refills when they run out. As a result, accounting for propane or heating oil costs can be less predictable, but one way to estimate their costs is to average how much was spent on them in previous months or years.
Water and sewer
The amount of a water bill can vary depending on things like how frequently the shower is used, how often a washer is used and how much water is used for landscaping. Many municipal water bills may also include an amount for sewer services, so there’s no need to budget for those separately. Households located on private wells and septic systems may incur a monthly cost for water treatment, such as a water softener and supplies, and may want to budget monthly for pumping the septic tank when it needs emptying, which can cost several hundred dollars.
Electricity
Electricity accounts for a significant portion of average U.S. utility bills, and its cost is higher for households that cook and/or heat with it. The U.S. Department of Energy provides many tips for reducing how much electricity consumers use, including turning down the brightness on your TV screens, consolidating refrigerators and switching to energy-efficient appliances.
3. Food and dining out
Whether it’s a home-cooked meal, pizza delivery or upscale dining, you’ll need to budget for everything spent on eating. Like maintenance costs, food costs vary from month to month. One way to estimate a monthly cost for food is by averaging out food expenses over the past year.
Food costs are a good place to start when it comes to limiting expenses. Cutting back on takeout and limiting how often you dine out can help reduce expenditure and give more room for paying off debts or saving. Buying in bulk, using a cash-back credit card or debit card and using coupons can help you get the best deals.
4. Transportation
Transportation costs include what you spend on daily travel and commuting. For those who own a car, monthly car payments and vehicle insurance are transportation costs to factor in. And then there’s gas costs, too, which average $3.44 per gallon.
Those who commute by public transportation should account for train or bus fares.
Don’t forget to include any smaller additional transportation-related expenses, such as parking fees or routine maintenance like oil changes or new tires. It may make sense to include these periodically at full cost in your budget instead of including a portion of the expense each month since that is how you will pay for them.
5. Child care and pet care
Having children or pets means paying for someone to watch them when you’re running errands or out for the day at work or school. Child care costs might include the monthly tuition for a day care facility, or you may need to estimate a monthly cost for occasionally hiring a babysitter.
Pets also need to be accounted for in expenses. Veterinary bills, pet food and pet sitters are some expenses to consider. Similar to other variable expenses, it may help to average child and pet care costs for the year to estimate the total amount these will take up in a budget.
6. Cell phone
Cell phone bills are a common monthly expense that can be straightforwardly tracked with a monthly bill. Plans that offer unlimited talk and data minutes typically are the most expensive. But if you’re frequently on Wi-Fi and don’t talk by phone much, you might find you can save a few bucks by opting for a plan that limits talk and data amounts.
7. Health insurance
Health insurance costs vary from person to person, but your premium generally only changes once a year, so you can budget based on a consistent monthly expense. Premiums for employer-sponsored plans are partly paid by the company or entity you work for. For budgeting purposes, only include the portion of the premium that you pay.
Copays or deductibles that aren’t included in your premium. Putting aside an amount each month to cover these expenses can help ensure that you’re prepared for an emergency medical issue. Money set aside for out-of-pocket health-care expenses can be kept in an emergency fund, in a health savings account (if you have a high-deductible health plan) or in a flexible spending account.
Learn more: Best Health Savings Accounts
8. Debt payments
The monthly expense related to debt isn’t the debt balance itself, but the payment on the debt balance. These could be payments on credit cards or loans, like personal bank loans and student loans. Most likely there’s a minimum payment that needs to be made each month, though it’s advisable to pay more than the minimum to get the debt paid off faster.
Depending on how the budget is organized, this category can include car or house payments. Just make sure not to double-count them if they’re also included in transportation or housing expenses.
9. Savings contributions
Savings should be a regular part of any budget, so including a monthly savings “expense” is a good way to incentivize setting some money aside. Assign some of the money you have left after paying other expenses in your budget to an emergency fund or investment account.
What is the 50/30/20 rule?
Wage earners should set aside 20 percent of their income for saving, according to the 50/30/20 budgeting rule. But even if you aren’t able to stash away 20 percent every month, putting aside whatever you can and making sure not to spend it can help with getting into the habit of saving.
To ensure you consistently save, you can set up automated transfers of a specified amount into your savings account.
10. Entertainment
Entertainment expenses are related to anything you do for enjoyment, including money spent on movie tickets, hobbies, sporting events and museums.
Such discretionary spending can be difficult to budget for as some of it often comes on a whim. Still, creating a line item for entertainment in your budget — and sticking with it — can help you better account for all the costs associated with having a good time.
11. Streaming services, cable and internet
For this category, you’ll want to factor in all the monthly bills for various at-home entertainment services, from Netflix to Wi-Fi. Some may categorize these expenses as entertainment, but internet and streaming bills generally are fixed expenses, making them easier to budget for each month, while spending on movie theaters or sports events can vary from month to month.
This section of a budget is another area where cutting costs can be easy. With Netflix, for example, subscribers can halve subscription costs if they switch from an individual plan to a shared premium plan, split with three others. Also, consider using a streaming service instead of paying for cable TV plans, which are frequently more expensive.
12. Memberships and subscriptions
In addition to subscription streaming services, there are a number of other recurring subscription payments to account for, including gym memberships, magazines and club memberships. Search through your bank account history from the past month to see if there are any subscription or membership fees being charged to the account that you may have forgotten about or didn’t intend to sign up for at all.
13. Travel expenses
Travel expenses can consist of things like airline tickets, hotels, car rentals and baggage fees. If the travel is for business, many of these expenses are tax-deductible. Costs associated with personal travel, such as vacations, aren’t tax-deductible.
Travel expenses likely won’t need to be factored into a budget every month, unless you’re a frequent traveler. But it’s still helpful to plan ahead for the months that will involve traveling, so you can save some money beforehand.
14. Retirement accounts
Beyond fundamental expenses, such as food, housing and utilities, there is perhaps no more important line item in a budget than saving for retirement. There are several retirement account options, the most common of which are an employer-sponsored 401(k) and a self-funded IRA. Bankrate’s retirement calculator can help you figure out how much you need to save in a retirement account over time.
15. Emergency fund
Having and building an emergency fund is one of the top ways to maintain financial security, because it prepares you in advance for unexpected expenses. An emergency fund is where you store money specifically for these sudden expenses, such as medical bills or an unforeseen auto repair.
Next steps to creating your budget
Now that you’ve established what your monthly expenses are, you’ll need to organize them into a budget. To create a budget, start by listing out the individual expenses and their monthly costs.
Next, compare the listed expenses with your income. The total for expenses should be comfortably below income. If not, determine where there might be room to save more, such as by cutting down on dining out expenses, canceling subscriptions or reducing the amount spent on personal services, such as dry cleaning or salon appointments.
Every month, track your actual expenses and compare them to the written budget. Then you can see if actual spending matches up with what you predicted. When there are discrepancies between budgeted and actual expenses, it may be a sign that either the budget or your spending needs to be adjusted and provides an opportunity to make simple yet impactful improvements.
Bottom line
Creating a budget is a valuable tool for keeping your finances in order. It can help build more awareness about your spending and encourage sticking to a realistic spending plan, while also practicing saving habits.
Take the time to write out a monthly budget and adjust it as necessary to account for new expenses or changes in your household.
— Bankrate’s Marcos Cabello contributed to updating this article.
