How to Create a Budget and Stick to It
The term “budget-friendly” seems like it is used everywhere these days. Ads for budget-friendly vacations, budget-friendly recipes on Instagram, tips on how to live a budget-friendly lifestyle, etc. And here you are, staring wide-eyed at the balance in your bank account thinking, “What is this budget you speak of, and how do I get one?” If this sounds familiar, don’t worry – you are definitely not alone! But this may be the perfect opportunity to reevaluate your finances and think about creating a budget plan.
While the process of sitting down and preparing a budget may seem intimidating, there are several personal budgeting tips that can help. Setting realistic goals, holding yourself accountable, and leaving room to have a little fun is key!
A budget is a fantastic financial tool, sure, but the real trick is truly sticking to it each month. Just remember —your budget is your friend. It is there to help you reach your goals, not to make you feel trapped in a spreadsheet. Don’t be afraid to adjust your budget as your priorities change, always look for opportunities to improve your spending habits, and celebrate when you reach small goals. Before you know it, you might even see a comma in your bank account. That’ll be the day!
Read on to discover ten helpful tips for creating a budget and how to actually stick to it.
1. Set goals of all shapes and sizes.
Before you begin planning a budget, think about why you want to start in the first place. Perhaps you have some big goals you would like to achieve, like paying off student debt, saving up for a down payment on a house, or just having a little extra cushion in your bank account. Setting goals that you can work towards is a great way to stay on track and help keep yourself motivated.
However, when we have big goals in mind, it is easy to feel stuck between where we are now and how to reach the end. That is why it is important to set small, actionable goals as well. Think of creating a budget as taking a road trip with a few stops along the way to your destination.
Let’s say your big goal is to create an emergency fund savings of $5,000. While that may seem impossible in the beginning, the way to get there is by creating a budget plan that allows you to start saving a little at a time. Some actionable goals you can set include first saving $100 by a specific date or finding areas where you can save $20 or more each month to put towards your goal. Once you check an item off your list, celebrate and feel proud of yourself! Then, use that momentum to work towards a slightly higher goal, like saving $500. Continue this process and before you know it, there will be a satisfying check mark next to your big goal.
2. Find the right fit.
Okay, so now that you are ready to figure out how to create a budget, it is time to think about what system will work best for you. There are several different budgeting methods available and finding the right one will help you follow through and stay on track.
The good old-fashioned line-item budget is what most of us think of when we think of creating a budget. You create a spreadsheet or write down all of your expenses and keep track of them by setting spending limits for each line. This method is pretty basic, which makes it great for beginners, but does require that you remember to track your spending and stay within your limits.
The 50/30/20 budget, otherwise known as a proportional budget, allocates your funds based on needs, wants, and savings. With this method, 50 percent of your income goes to needs, such as bills and groceries, 30 percent goes to wants, like shopping and entertainment, and 20 percent goes into your savings. This budget planning method definitely leaves room for flexibility, but if your goals are savings-based, you may want to consider using a different system.
A zero-based budget means that each and every cent of your income is used for a specific purpose, like rent, debt-repayment, or savings. This method allows you to maximize the productivity of your funds and virtually eliminates overspending, which is great for reaching goals. Keep in mind that the zero-based system does take some planning and might feel a bit advanced for a budgeting newbie.
If you are more of a cash-spender, you may enjoy the envelope method. With this budget planning method, you break your spending into categories and create an envelope for each one; you then fill each envelope with a specific amount of cash, which acts as your spending limit for that category. This method is easily customizable, allowing you to include things like saving for a vacation, and ensure that you do not exceed your budget for things like entertainment and shopping.
Finding the right personal budgeting tips and system for you may take a little trial and error, but do not get discouraged; remember to cut yourself a little slack, and if you feel stuck, simply try a different method. Once you find your budgeting sweet spot, you will feel like a financial guru in no time.
3. Look at your monthly income.
In order to figure out where to allocate your funds, you first need to calculate your total net income. This is the amount that you bring home after taxes, 401K, and other deductions are taken out. Be sure to consider all of your income streams, including any supplementary income, no matter how small. Remember, when it comes to creating a budget, every penny counts.
If you only have one source of income and want to make some serious financial moves, consider increasing your monthly earnings with a side hustle. There are endless options available, like selling goods, ridesharing, and tutoring, to name a few. Just remember to invest your time in something that you will enjoy, and don’t stretch yourself too thin; your mental well-being is just as important as your financial well-being!
4. Add up your necessary expenses.
Once you know your net income, it’s time to calculate your total necessary monthly expenses. These are the things that you absolutely have to pay each month, no matter what; include things like rent, utilities, auto and health insurance, childcare, groceries, and so on. If you’re not sure if something is necessary or not, ask yourself, “Can I live comfortably without this expense?” If the answer is no, it is necessary.
Some expenses are variable, meaning they will fluctuate each month based on use, like utilities and groceries, and some are fixed, meaning they will generally stay the same, like rent and car insurance. When creating a budget plan for the year, don’t forget to look at your calendar and factor in expenses that are not monthly, like car registration or annual membership fees.
Now that you have a total, you can figure out how much of your income needs to go towards covering each of these expenses. The amount that you are left with can be used for savings, debt repayment, or non-essential expenses.
5. Prioritize savings.
Now it is time to decide how much of your funds will go towards your savings goals. Never underestimate the peace of mind you get when you have a savings account or emergency fund. One of the most important tips for creating a budget is to make sure that you are setting aside something each month, no matter how small or large the amount may be.
If you are the type of person who spends your money as quickly as it comes in, one of the best tips on budgeting is to automate your savings!
If your employer offers direct deposit, check to see if you can add another deposit account and automatically send a percentage of each paycheck to your savings. You can also use your banking app to schedule a recurring transfer from your checking account into your savings account each month, so you don’t even have to think twice about it. You just sit back and watch your savings balance grow. How easy is that?
6. Don’t forget to have a little fun!
One of the best personal budgeting tips to help you stick to your plan is leaving yourself a little room to have some fun. If you’re thinking, “Isn’t the whole point of creating a budget to cut down on extra expenses?” Yes, you are correct.
However, if you are strategic and designate funds for things that you enjoy, it will drastically reduce the chances of you feeling like you’re stuck in a budget box or splurging on something you don’t need because you’ve been pinching pennies for so long.
“Fun funds” can generally fit into any budget and will differ for everybody depending on what you like to do. Keep an eye out for opportunities to save on experiences, like discount days at museums, matinee theatre tickets, or even exploring new areas of your city absolutely free (talk about budget-friendly!).
If you tend to splurge on things like food and shopping and want to reduce your spending, try to reserve your extra funds for rewarding yourself for those small victories we discussed earlier. When you check an item off your goals list, it is okay to enjoy a nice dinner or treat yourself to a little something you’ve had your eye on.
This can also be a great opportunity to get creative and try new things. Challenge yourself to think outside the box and come up with some fun free date night ideas or check out a new restaurant that might offer a happy hour special. If you want to splurge without breaking the bank, try your hand at couponing or use the Piggy extension to find great savings opportunities!
7. Track your spending.
Okay, now that you have a better grasp on your finances, it is time to make sure that you stick to your plan by tracking your spending throughout the month. This is also a great opportunity to set limits and see if there are any categories where you can improve your spending habits.
Just like there are several methods for creating a budget, there are also many different ways you can keep an eye on your spending. If you are a fan of spreadsheets, you may enjoy using Excel or Google Sheets to track your own spending. If you are a set it and forget it type of person, try using an app, like Mint or Wally, which allows you to securely link your bank account, set goals, and get reminders if you are reaching your spending limit for a specific category. Using an automated tool is especially beneficial for those new to the budgeting game because it takes a lot of the guesswork out of the process.
8. Break it down.
A helpful personal budgeting tip is to consider how often you get paid and break down your budget accordingly. This makes it a little easier to have a plan for each paycheck and make sure you stay on course to meet your goals.
For example, if your paycheck occurs weekly, it is a little easier to think of your budget in weekly figures. Simply divide your monthly expenses by four to make sure you aren’t overspending during any part of the month. If your rent is $1000, you will need to set aside $250 of your weekly income to make sure you are covered by the time rent is due again.
Similarly, if you get paid monthly, budget at the beginning of each month so that you will have enough to survive until your next paycheck. If you typically spend $40 a week on gas, make sure you budget $160 a month so you can get to where you need to go.
9. Hold yourself accountable.
Now that you have the logistics of how to budget under control, it is time to put them into practice. An important part of sticking to any budget is to hold yourself accountable. Granted, sometimes this is easier said than done, but there are things you can do to keep yourself on track.
Write down your goals and post them somewhere visible. Try putting a sticky note next to your coffee pot to get in the right mindset each morning or flex your creative muscles and make a chart to keep track of your progress. You might also consider keeping a goals journal and write down where you are doing well and where you have room for improvement. Keeping an eye on your goals (literally) can really help you stay focused.
Work on implementing good habits and learn when to say no. If your goal is to pay off credit card debt, put your credit card away in a drawer so you’re not tempted to use it. If your goal is to create an emergency fund and you feel yourself reaching for an impulse buy, stop and ask yourself, “Do I need this, or do I want this?” If your answer is the latter, walk away slowly and give yourself a pat on the back.
Think about automating your expenses. If you are having trouble staying within your spending limits, you may benefit from switching your bills to autopay. This way, they are taken directly out of your account before you are inclined to spend those funds. If you would like to go a step further, ask your bank if you can set up multiple checking accounts for free. If so, create a separate account specifically for billing. You already did the work to figure up your monthly expenses, so now you just send a portion of each check – either weekly, bi-weekly, or monthly – to this account. Out of sight, out of mind.
10. Adjust as needed.
Life happens. That’s a fact. As your circumstances change, so should your budget plan. Maybe you had to dip into your emergency fund. Try slimming down your grocery budget for a month or two until you are back where you would like to be. Or perhaps you received a raise at work (good for you!!), then maybe add a little more to your fun fund as a reward or make an extra student loan payment every month to get that balance down even quicker.
Don’t be afraid to revisit your budget as often as you’d like, try different methods, and make adjustments until you feel like you’ve found a system you can really stick to.
Once you reach specific goals, don’t stop there. Keep the momentum going by setting new goals for yourself and be proud of the progress you’ve made. Improving your financial future and sticking to your budget is a process. If you ever slip up, don’t be too hard on yourself; just use it as a learning opportunity and keep moving forward with all the best personal budgeting tips in mind. You’ve got this!
Now that you are a budgeting boss, check out these other great money-saving tips on budgeting.