Identify fixed and variable income

The first step to creating a monthly budget from scratch is to know exactly how much money comes in each month. This means separating your fixed income, such as salary, from variable income, such as commissions or extra jobs. Only when you are clear about what you receive can you make smart decisions about what you spend.

What is fixed income and why does it matter?

Fixed income is those amounts that you receive predictably each month, such as your payroll or a pension. They represent the stable basis of your budget.

Knowing this figure allows you to know with certainty how much you can commit to recurring expenses without putting your financial stability at risk.

How to calculate your variable income?

Variable income includes tips, overtime, freelance sales, or sporadic returns. They are real, but not guaranteed every month.

The best strategy is to calculate the average for the last three months. This way you get a conservative figure that you can add to your fixed base with confidence.

Where to record all your income?

You can use a simple spreadsheet or a personal finance app like Fintonic or Monefy. The important thing is to have only one place to consult.

Recording each income, no matter how small, gives you a real snapshot of your monthly financial capacity and avoids surprises when planning.

Now that you're clear about how much money comes in each month, the natural next step is to understand where it's going, separating your essential expenses from those you could reduce.

Categorize essential and superfluous expenses

Creating a monthly budget from scratch requires distinguishing between what you need to pay and what you choose to buy. Categorizing your essential and superfluous expenses allows you to clearly see where your money is going and discover real savings opportunities without sacrificing your quality of life.

What expenses are considered essential?

Essential expenses are those that cover basic needs such as housing, food, transportation and services. Without them your daily life becomes seriously complicated.

Many people find that these expenses represent between 50 and 60 percent of their income. Knowing that ratio gives you real control.

How to identify superfluous expenses?

Superfluous expenses include barely-using subscriptions, frequent meals out, or impulse purchases. They are not bad, but they are negotiable.

Review your bank transactions from the last month and mark everything you could have avoided. That simple exercise shows you how much you can redirect to savings.

Why should both categories be separated?

When you separate the essential from the superfluous you gain perspective to make conscious financial decisions. You stop spending on autopilot.

This clarity allows you to protect what is important and reduce what is expendable without feeling like you are depriving yourself. It's the basis of a budget that really works.

With your spending organized into clear categories, the logical step is to assign a maximum cap to each so that your money returns exactly as you need it.

Set limits by category

Assigning a maximum cap to each spending category is what transforms a list of numbers into a real budget. Defining clear limits helps you distribute your income with intention, avoid money leaks and ensure that every euro works in your favor throughout the month.

How to apply the 50/30/20 rule?

The 50/30/20 method proposes allocating 50 percent to needs, 30 to desires and 20 to savings. It is a very effective starting point.

You can adapt these percentages to your reality. If your fixed expenses exceed 50 percent, adjust desires and savings until you find your balance.

What tools facilitate control?

Apps like YNAB or Wallet assign automatic limits and notify you when you approach the limit. This way you avoid going overboard without constant effort.

If you prefer something simpler, a spreadsheet with basic formulas serves the same function. The essential thing is to check your figures every week.

What to do when you exceed a limit?

Exceeding a limit does not mean failing, but you have new information. Analyze what extra expense appeared and decide if it was one-time or recurring.

When a limit is frequently broken, it is a sign that you need an honest readjustment. Better to correct the figure than abandon the entire plan.

Once your limits are working, the next step is to review and adjust monthly so that your budget evolves at the same pace as your life.

Review and adjust monthly

A monthly budget from scratch only works if you review and adjust it regularly. Spending a few minutes at the end of each month to compare what is planned with what is real allows you to correct deviations, reinforce positive habits and adapt your plan to the natural changes in your financial life.

When and how to do the monthly review?

The best time is the last day of the month, when you already have all the movements recorded. Compare each category with the limit you set.

That contrast between what is planned and what is spent reveals patterns that you do not see on a daily basis and gives you real power to decide what to change.

What signs indicate you should adjust?

If a category exceeds two months in a row, your limit needs a more realistic figure or a conscious habit change.

Also pay attention to variable income. Whether they went up or down, redistributing those amounts keeps your budget aligned with your reality.

How to make revision a habit?

Schedule a monthly alert on your mobile and treat that appointment with yourself as something non-negotiable. Fifteen minutes are enough to review everything.

Each review boosts your confidence because you check your progress. Over time, adjusting becomes as natural as checking your balance.

When you identify your income, categorize your expenses, set limits and review each month, you stop improvising and start directing your money with a clear plan that grows with you.