Ernest Varvoutis’ Guide to Building a Practical Monthly Budget
Creating a practical monthly budget is one of the most important steps you can take toward achieving financial stability. Without a clear understanding of your income and expenses, it can be challenging to make informed decisions about saving, spending, and investing. Financial expert Ernest Varvoutis provides valuable insights into building a budget that works for you—one that’s realistic, achievable, and aligned with your financial goals.
1. Start with Your Income
The first step in building a practical budget is understanding your income. For most people, this will primarily come from a salary, wages, or business profits. Ernest advises that you calculate your total monthly income after taxes and any other deductions (such as health insurance or retirement contributions). This is your “take-home pay” and will be the base figure for your budget.
If you have multiple streams of income, such as freelance work or a side business, include all of them in your calculations. It’s important to have an accurate picture of how much money you have coming in each month before you move on to allocating it.
2. Track Your Expenses
Once you know how much money you have coming in, the next step is tracking your expenses. Ernest Varvoutis recommends separating your expenses into two categories: fixed and variable.
• Fixed Expenses: These are recurring costs that stay the same each month, such as rent or mortgage, utilities, insurance premiums, loan payments, and subscriptions. These expenses are typically non-negotiable and should be prioritized in your budget.
• Variable Expenses: These costs fluctuate each month, such as groceries, dining out, entertainment, transportation, and personal care. While you have more control over these expenses, they still need to be accounted for when creating a budget.
Tracking these expenses will give you a clearer picture of where your money is going. Ernest suggests reviewing bank statements, credit card bills, and receipts for the past few months to get an accurate idea of your spending habits.
3. Set Your Priorities
After categorizing your income and expenses, it’s time to set your priorities. Ernest believes that one of the most critical aspects of a successful budget is ensuring your spending aligns with your values and goals. Start by allocating money for your fixed expenses, such as housing and bills. Then, look at your variable expenses and decide what’s necessary and what’s not.
For example, if saving for an emergency fund or paying down debt is important to you, make sure those expenses are included in your budget before spending money on non-essentials. Ernest recommends making your savings a non-negotiable part of your budget—just like your rent or mortgage payment. Aim to save at least 10-15% of your income each month, even if it means cutting back on some luxuries.
4. Use the 50/30/20 Rule
One of the simplest budgeting methods Ernest Varvoutis recommends is the 50/30/20 rule. This rule divides your after-tax income into three broad categories:
• 50% for Needs: Allocate half of your income toward essential expenses such as rent, utilities, groceries, transportation, and health insurance.
• 30% for Wants: This category covers discretionary spending, such as dining out, entertainment, shopping, and hobbies.
• 20% for Savings and Debt Repayment: The remaining 20% should be reserved for saving or paying off any high-interest debt, such as credit card balances or loans.
By following the 50/30/20 rule, you can ensure that you’re balancing your needs with your wants while still making progress toward financial security.
5. Adjust and Refine Your Budget
Once you’ve set up your budget, Ernest emphasizes the importance of regularly reviewing and refining it. Life circumstances change, and your budget should reflect those changes. If you get a raise, for example, consider allocating a portion of that increase to savings or paying off debt. If you encounter unexpected expenses, adjust your budget to accommodate them.
Use budgeting tools or apps to track your progress and make adjustments as necessary. Tools like Mint, YNAB (You Need a Budget), or a simple spreadsheet can help you stay on top of your finances. Ernest advises checking your budget at least once a month to make sure you’re sticking to your goals and identifying any areas where you can improve.
6. Stay Disciplined and Accountable
Building a budget is one thing, but sticking to it is another. Ernest Varvoutis underscores the importance of discipline when it comes to budgeting. Avoid making impulse purchases and try to stay focused on your financial goals. If you find it difficult to resist spending on non-essentials, consider using cash for discretionary purchases rather than credit cards. This can help you stay mindful of your spending and avoid overshooting your budget.
It’s also helpful to have an accountability partner, whether that’s a friend, family member, or a financial advisor. Sharing your goals with someone else can help you stay motivated and accountable.
Conclusion
Building a practical monthly budget is a crucial step toward financial well-being. By understanding your income, tracking your expenses, setting priorities, and following Ernest Varvoutis tips—such as the 50/30/20 rule—you can create a budget that works for you. Regularly reviewing and adjusting your budget will ensure you stay on track to achieve your financial goals, giving you a sense of control over your finances and a clearer path toward long-term financial success.