You wrote "groceries: €400" in your budget, and three weeks later you're at €460. The budget wasn't wrong because you overspent; it was wrong because €400 was a guess.
In short: take three to six months of bank statements, sort every payment into a category, and mark it as an essential or a want. For each variable category, note the lowest, the typical and the highest month. Plan with the typical month, keep a buffer for the gap up to the highest, and divide yearly bills by 12.
- Export 3–6 months
- Categorise and mark essential or want
- Low, typical, high per category
- Plan with typical, buffer for high
A worked example: groceries
Made-up but realistic: six months of grocery spending from one person's bank statement.
| Amount | |
|---|---|
| Lowest month | €380 |
| Typical month (median) | €415 |
| Highest month | €530 |
€415
- Plan with €415. The typical month is what happens most of the time. Planning with the lowest month (€380) builds a budget that runs over five months out of six.
- Keep €115 of slack for the expensive months. That's the gap between the typical and the highest month. It doesn't need its own account; it's why a small buffer in your current account is useful (paycheck vs spendable).
- The median, not the average. The average here is €432.50, pulled up by one expensive month (a birthday, a visit, a stock-up). The median, halfway between the two middle months, isn't moved by one outlier.
The steps
1. Export three to six months of transactions
Most banking apps can export a statement as a spreadsheet file. Three months is the minimum to see a pattern; six also catches seasonal costs like heating.
2. Sort every payment into a category
Keep the list short: housing, utilities, groceries, transport, insurance, debt payments, health, eating out, shopping, entertainment, subscriptions. Ten to twelve categories is enough. Twenty categories you never look at help less than ten you do.
3. Mark each category as essential or a want
Essentials are what you'd still pay in a hard month: housing, utilities, groceries, transport to work, insurance, medicine, minimum loan payments. Everything else is a want. Be honest with the grey areas: a gym membership you'd cancel in a crisis is a want.
4. Find the low, typical and high month for each variable category
Fixed costs (rent, loan payments) are the same every month, so one number is enough. For the rest, sort the months from lowest to highest and take the middle as the typical month.
5. Turn yearly bills into a monthly amount
Car insurance, vehicle tax, a yearly subscription or holiday gifts appear once and break the month they land in. Divide each by 12 and set that aside monthly. A €540 yearly car insurance becomes €45 a month.
6. Repeat every three months
Prices change, and so do habits. Re-run the numbers each quarter, or straight away after a move, a new job or a new child.
What tracking won't tell you
- Cash payments are invisible. If you pay cash at the market, note it somewhere or withdraw a fixed amount and count that as the category.
- Card payments aren't always one category. A supermarket receipt can mix groceries and household items. Don't split every receipt; pick a rule and stick to it.
- Past spending isn't a target. It shows what happened, not what should happen. Once you know the numbers, deciding what to change is a separate step (monthly budget).
Use the numbers
Add up your fixed essentials and the typical month of each variable essential. That total is the "essentials" figure the free 50/30/20 budget calculator and the emergency fund calculator ask for.
One thing to do today
Export last month's statement and find just one number: what you really spent on groceries. Compare it with what you thought you spent.