A month is the most common period for which a budget is prepared. A lot us get paid a monthly salary. Most bills are monthly. Interest in charged monthly. It is of little wonder that a monthly budget is most frequent.

The end of the month is the perfect time to review your get an overview of what happened to your finances during the month and prepare for the next. A budgeting exercise becomes even more useful if you take time to reflect on how you did with your money.

How do you transition from one budget to the next? How do you close out one month’s budget before starting on the next?

Let’s find out.

Note: Most of these steps would be applicable if your budgeting was for week, a fortnight or any period other than a month.


Step 1: Bill Tracker

The first thing I do when setting the next month’s budget is to go and look at my bill tracker. This is a simple running list of all my bills that come in periodically with their due dates and budgeted amounts.

For convenience, the tracker is divided in two parts. First is a log of all my monthly bills – rent, utilities, subscriptions. Then I have my bills which come in annually. These are written down in order according to their due dates.

If you have payments due quarterly or semi-annually, then I would suggest that these be written down in accordingly.

From the bill tracker I transfer all the bills to be paid to my monthly calendar as well as my money plan for the month (step 3).

I look at my bills tracker about five days before the end of the month.

How do you keep track of your bills? Print the simple bill tracker template from the free resource library. Use it to stay on top of your bill payments. Get access using the form below.

Step 2: Budget Expenses

Next step is to estimate my expenses for each category – food and groceries, home, transportation, personal, children, lifestyle, health, insurance, vacation and sinking funds.

Once again, I do this around the 25th of each month. Why? Because by then I have a great idea of what my expenses for this month have been and what I have coming up in the next month.

Use the current month’s expenses as the starting point. This is where I evaluate if my expenses have deviated from what I had estimated or from what they have typically been in the past few month and how significantly.

Let us say in the food category – Did I spend higher or lower? By how much? Why? Was it because we had guests at home? Or did we go out to eat a lot? This helps me understand if the higher or lower expenses were a one-off thing for this month or if they are expected to continue.

Next I see if there is anything happening the next month. Am I going to be travelling or planning a travel? I need to factor those in.

Step 3: Make A Plan For Your Income

Based on all these I allocate my income to the different categories.

When do I do this? Around the 25th of the month. If you don’t know your exact income at this point of time, it is okay to use an estimated amount for this. You can make adjustments once you get your actual pay stub. Hopefully, your actual income will not be too different from what you estimated and the adjustments would be minor.

First allocate your money to your bills or the fixed expenses. These are things you have to spend money on – your rent, utilities etc.

Next is your variable spending on food, personal expenses, household stuff, children’s stuff, gifts, etc. These are things on which you have some control on the amounts you can spend.

Next is your financial goals. Allocate money towards paying off your debt, saving for your sinking funds, or your retirement savings, etc.

How do you decide what amounts you want to allocate to paying off debt viz sinking funds? While there are financial rules that will help you do this, ultimately you do so according to what you think is right for you.

Decide according to YOUR FINANCIAL PRIORITIES. Do whatever makes you sleep more comfortably at night, so that when you wake up tomorrow you know you are in a better place than you were yesterday.

Make a plan for every dollar of your income – be it for bills and fixed expenses, your variable expenses, paying off debt or for savings and retirement.

Once you know your actual income, make any small adjustments that may be needed.

Step 4: Carry Forward Balances of each Account

On the 1st of each month, I go and look at each of my accounts and confirm their actual balance.

Every place where you can deposit money or spend from is an account. It could be a checking account, a credit card account, or cash accounts.

Apart from the above, you may have a few savings accounts for your sinking funds.

So the actual cash amount that I have in my wallet (or in the cash envelopes should you use those), the balance in my checking account and my credit cards on the last day of the month are carried forward as the opening balances to start off the next month’s budget with.

This is the key step to close this month’s budget and to transition to next month’s.

A few things:

  1. Your cash, checking and savings accounts should not have a negative balance.
  2. If you receive your income on the last day of the month in your checking account, the balance there will reflect it. And, if you receive it on the first day of the next month, add it as income in the next month’s budget.
  3. In case you have an outstanding amount on your card, the credit card account of your budget will have a negative balance.
  4. The sum of all your accounts (including your income for the month) should be a positive number. This is the amount you have available to spend.

In addition, write down the previous month’s balance of your sinking funds as opening balances for this month in your sinking funds trackers.

Looking for printable sinking fund tracker templates? Find them in my free resource library. They help you plan, track and visualize the sinking funds for your different goals. Use this form to gain access.

Step 5: What did I spend my money on?

This analysis helps me to understand what I spent my money on. How much of my money ended up being saved?

The percentage of my expenditure on different categories is done here. I see what categories I overspent (or under spent) on and by how much,

I use a Google Sheet for my monthly budget. As a result a lot of these calculations are done automatically for me. All I have to do is review the results and see if I need to make any course corrections.

I do this on the first of every month ( or soon after).

Step 6: Net Worth Tracker

The last thing I do is update my net worth tracker. As I receive the statements of my investment accounts, I add them to my worksheet and calculate the change compared to the previous month.

Another thing I will start doing is to compare the change over the same month in the previous year. This will help me understand how I have grown (hopefully) during the year.

These are the different activities I do each month as I close one month’s and start the next month’s budget.

Is there any thing that you do that I may be missing out? Let me know and I will try to incorporate it.

Looking for more inspiration to help you budget? Follow my Budgeting Pinterest Board for articles and resource.

Read More:
1. Track Your Spending: The First Step To Managing Money Better
2. Start A Personal Budget and Make It A Habit
3. How To Budget For Christmas?

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