How to make a monthly budget from your own numbers

A budget is a measurement

Most people build a monthly budget by deciding what they should spend. That budget breaks within three weeks, because it describes someone else's life rather than yours.

The version that survives starts from what you already spend, then adjusts a small part of it on purpose.

Get data before you set a single limit

You cannot budget a category you have never measured. With no history you have two options: import it, or wait.

Importing is faster. Most banks export a CSV of the last twelve months, and Chillar's maps the columns with a preview before it writes anything, so you can see a wrong guess about the date format and correct it. If you have been using another expense tracker, export from it first. That file is the whole point of the exercise.

If you can do neither, track for three months and set no limits at all. Three months averages out one unusual month, where one month cannot.

Schedule fixed costs, budget variable ones

Separate your spending into two piles.

The first is fixed: rent or mortgage, loan instalments, insurance, school fees, subscriptions. These hold steady month to month, and a "limit" on them means nothing, since you cannot decide to spend less on rent in March.

They need scheduling, so you see the money before it leaves. In Chillar's these become planned payments with a recurring rule, and they appear in an upcoming list for the current period. A monthly rule anchored on the 31st falls to the 28th in February and returns to the 31st in March, because each occurrence counts from the anchor rather than the previous date.

The second pile is variable: groceries, eating out, transport, shopping, entertainment. This is what a budget is for.

Budget two or three categories

You will want to set a limit on everything. Resist that.

A budget with twelve limits gives you twelve numbers to check, most of which you have no intention of changing, and within a month you stop reading any of them. A budget with three limits, on the three categories where you want different behaviour, gets read, because each number stands for a decision you already agreed to make.

You still track the other categories. They just carry no limit.

Set the limit just below the average

Take the three-month average for the category and set the limit 10 to 15% below it.

You can close that gap with ordinary friction: one fewer delivery a week, or a larger grocery shop in place of three small ones. No change of lifestyle required. A limit at half the average produces a breach in week two and a budget you stop opening, which leaves you worse off than no budget.

In Chillar's, a budget can be weekly, monthly or yearly, and monthly budgets follow your own start-day-of-month. If you are paid on the 25th, set the month to start on the 25th. The period then matches the cycle the money arrives in, and the "how much is left" number means what you want it to mean.

You can also scope a budget to specific accounts. Budget what leaves your current account and ignore a card you settle in full each month, and you avoid counting the same spending twice.

Review once, change one number

At the end of the month, compare actual against limit for your two or three categories.

Then change at most one number. If you breached a limit by a wide margin every week, the limit was wrong rather than the month. If you met it with room to spare, tighten it or move to a different category.

Budgets improve by iteration. Treat the first as a hypothesis, and expect the fourth to be close.