What is a Monthly Budget?

If you’re making some money (and also spending some money) then you may be you’re considering creating a budget so you can generate some savings or pay down your debt.

But, what is a budget? And, what is a monthly budget?

Here is a brief definition:

A monthly budget is a personal budget used for your monthly income and monthly expenses to determine the balance of either savings (when income is greater than expenses) or debt (when income is greater than expenses).

A monthly budget isn’t much different from a personal budget other than it specifies the timeframe of the budget.

If you’re still trying to figure out what a budget actually is, check out our post here.

Why Do People Use a Month for their Budget?

The month timeframe is one of the most popular for personal budgets. 

People use a month for their budget for multiple reasons but the most typical reason is that so many expenses happen on a monthly basis. 

Here is a list of some typical monthly expenses:

• Rent or mortgage
• Cell Phone Bill
• Cable Bill
• Electricity, Water, and Gas (Utilities)
• Car Payment
• Credit Card Payment
• Monthly Subscriptions

You can probably come up with some more monthly expenses are that are specific to you. 

Another reason that people use budgets is because it is a common measurement of time. We tend to think on a monthly basis.

Additionally, a month is a pretty short amount of time so it’s easier to keep track of all of the expenses. 

What Are the Upsides of a Monthly Budget?

A lot of the reasons why people use monthly budgets are also the positives of monthly budgeting. 

A Lot of Expenses are Monthly

So many expenses happen each month so it makes sense to have a budget for every month. 

For example, if you were to do a four-week budget, a monthly expense (like a Netflix subscription) might not be included every once in a while. 

That causes your spending to be under-reported for those four-weeks when you don’t record that typical monthly expense which can cause a bunch of headaches. 

Short Time Frame 

Another upside of a monthly budget is that it is a short period of time. 

At the end of the day, the goal of a budget is to accomplish your expense expectations which leaves you with more money in your pocket. 

With a shorter amount of time, it is easier to keep track of how much you’ve been spending and if you’re approaching a limit that you’ve set.

For example, with an annual budget, you may not know how much you’ve spent on clothing for the year. So, you’re unsure if you should buy those new shoes. 

However, with a monthly budget, you’re more likely to have a conscious idea of how much you’ve spent on clothing for the month. 

What are the Downsides of a Monthly Budget?

There are also a few down sides to a monthly budget.

Are You Seeing a Meaningful Difference?

With a budget, we want to make a meaningful change in our spending and hopefully our saving.

A budget is as much about changing behavior as it is accomplishing your financial goals.

This can be difficult with a short timeframe like a month. There is only so much money you are earning and spending in one month. 

With a longer timeframe, you can see a bigger impact when reducing your spending which will help you to stick to that budget by seeing how much you’ve saved.

It’s always better to see a $1,000 improvement over a $100 improvement regardless of the time period. 

Lumpy Expenses

A monthly budget is great for all of those monthly expenses, but what about all those other expenses that happen once a year or some other infrequent time period. 

What do you do with that $500 car insurance payment that covers the next six months?

While there are a few different ways to tackle the issue, it can make monthly budgets difficult with these infrequent expenses. For two ways how we tackle these expenses, check out our post on simple budgeting. 

Income can be Difficult too

Your budget is monthly but your paycheck comes every other Friday (bi-weekly).

That means that some months you’re going to have more income because you’re paid three times. Again, there are few ways to fix this but it means extra work.

And, who likes extra work?

Do You Want to Calculate Your Budget Results Each Month?

Depending on the amount of transactions you have each month, this downside could matter more or less. 

If you have over a hundred transactions each month, that means that each month you’re going to have to categorize each of those transactions into expense categories. 

That takes time. 

Over, longer periods of time it’s easier to quickly categorize all of the similar transactions at once, saving you time. 

Should You Consider Another Timeframe?

If you’ve read our posts on simple budgeting or 5 reasons to use a quarterly budget, you know that we use a quarterly budget instead of a monthly budget. 

We believe that a quarterly budget incorporates a lot of the best aspects of a monthly budget while limiting some of the downsides. 

It’s also easy for us to account for monthly expenses because each quarter has 3 months while other lumpier expenses are smoothed out over the longer time period.

We are able to see meaningful results because of the longer time length but its still short enough that we are able to have a rough idea of where we are with our spending goals. 

Last but not least, we only have to perform all of the calculations for our budget four times a year rather than 12 times a year. 

For more on how to start a budget, check out our post on simple budgeting.