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How to Create an Expat Budget in Mexico

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Young couple calculating income and expenses
Credit: Andrey Popov | Thinkstock

Many expats move to Mexico for its affordable cost of living and relaxed lifestyle. But you can easily lose track of your spending, especially when everything seems cheap. And before you know it, your cost of living can skyrocket. That’s why you need to know how to create an expat budget in Mexico.

Let’s look at some simple steps to create a monthly budget, so you can make sure you are living within your means:

1. Know your monthly income

This is easy if you’re on a fixed income. Note down your income after deductions (net income), like taxes.

Don’t forget to consider all your income, however small, including passive income streams.

2. Understand your cost of living in Mexico

You’ll likely know your expenses if you’ve lived here for a while. But if you haven’t tracked your monthly costs lately, consider doing it. Remember, the current high inflation in Mexico may have increased your costs.

You can use an app, a spreadsheet or another free tool to easily track your numbers.

If you’re planning to move to Mexico or have moved recently, see our  article about the cost of living in Mexico to get an idea of expats’ living costs.

Divide your expenses into different categories. Here are some examples:

Rent or mortgage
Utilities
Household
Groceries
Eating out
Travel
Healthcare
Personal
Insurance

Don’t forget to include any expenses you have in your home country or elsewhere.

Knowing all your income and expenses can help you understand your financial situation. You might be even better off than you think!

3. Compare your income and expenses. What needs to change?

Can you cover your expenses comfortably with some extra money to spare?

Check where you’re spending too much (or too little). Don’t forget to review small recurring expenses that can easily go unnoticed. Everything adds up.

Budgeting doesn’t have to be an unpleasant process of cutting corners. It’s just a useful method to help you decide where to spend and where to cut back, depending on your preferences.

For instance, some expats love to eat out, while others would rather save for travel. When you create a budget that suits your needs, you may actually stick to it.

4. Set your budget

You can create a simple budget using a free tool or a spreadsheet.

If you’re on a fixed income, you know your next month’s income number. If you have income items that vary monthly, you can use an average.

Next, set spending limits for each expense category based on your needs. You can even allocate a percentage of your income into different expense categories. Select numbers that work for you, keeping your income in mind.

There are different budgeting methods you can try out. Let’s look at a couple of examples:

Envelope Budgeting

This method is about keeping a set amount of cash in an envelope for each expense category. It is generally used for variable expenses where you can easily exceed the limit.

For example, if your groceries cost $8,000 pesos a month, you would leave that amount in the grocery envelope. Each time you go grocery shopping, you’ll dip into this envelope. That’s your limit for the month.

Zero-based Budgeting

With a zero-based budget, you’ll put every dollar or peso of your monthly income into an expense, savings or another category.

For example, let’s assume your total monthly income is $40,000 pesos (and yes, the peso also uses the dollar sign). Your zero-based budget might look like this:

Total Income    $40,000

Rent                $10,000
Utilities            $4,000
Household        $4,000
Groceries          $8,000
Eating out         $2,000
Healthcare         $2,000
Savings             $10,000

Total                 $40,000

So, your net is zero.

There are other types of budgets you can use. Select a method that suits you.

Consider including a small buffer for unplanned expenses in your budget. Remember, ad hoc expenses like repairs can pop up. If you don’t spend it, great! You can move it to your savings.

That brings us to the next point:

Saving and investing can help you avoid stress during a sudden financial need. You may also want to save for specific things or experiences like vacations. Capture them in your budget.

Investing can make you some extra income. If you’re looking to invest in Mexico or anywhere else, make sure you understand the investments. Get professional advice.

5. Stay within your budget

Creating a budget is the easy part. You’ll need some discipline to stick to it. Here are a few tips:

Monitor your expenses to make sure you’re staying within your budget. It only takes a few minutes each day, and apps and tools are at your fingertips.

Check your budget often, especially when tempted to splash on something. It might be well within your budget. But it’s better to make sure!

Be careful with credit cards. If you can’t make your payment each month, you might end up with high-interest costs.

Want to know more about getting a credit card in Mexico? Read our article, “How to get a credit card in Mexico.”

6. Refine your budget as you go

Once you start budgeting, you can understand what goals are realistic and what needs to change. The good news is you can update your budget.

Besides, your monthly budget is bound to change between months. Your budget for July may not work for December, which is a high-cost month for many expats.

Other tips

Budgeting can become frustrating, especially if your income is not enough to cover your expenses.

But remember, you can earn money in Mexico, even after retirement. Many expats start businesses or projects that give them some income. And nowadays, making money online is popular among all age groups. See our article, “How to Become an Expat Entrepreneur in Mexico” for more information.

Finding ways to increase your income and grow your money can make managing finances interesting and even fun.

If you need help, always consult the right professionals based on your circumstances and needs. Good advice can save you money, time and stress.

Remember, staying on top of your money matters, including your budget. It can help you stretch your dollars further and enjoy the wonderful lifestyle Mexico offers.

This article is for general information only. It is not accounting, financial planning, or financial advice.

 

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