How To Create a Budget and Stick To It

By Mobel 6 Min Read

How to Create a Budget and Stick to It

Creating a budget can help you become more financially healthy. It can help you pay off debt, save money and prioritize important expenses.

To create a budget, start by calculating your monthly income. Review your bank statements and receipts to identify all of your regular expenses. Then subtract your total monthly expenses from your monthly income.

1. Set Your Goals

It’s important to create a budget that supports your financial goals. These might include paying off debt, saving for a big purchase or even investing for retirement. Having clear, attainable financial goals may help you stick to your budget by providing a reason to change your spending habits, like cutting back on dining out.

A solid budget requires a thorough understanding of your incoming and outgoing cash flow, which you can get by analyzing your bank statements and receipts. It’s also helpful to break down your expenses into categories of needs versus wants. The needs are things you must have to survive, such as rent or a mortgage, utilities, health insurance and food. The wants are luxuries that make life more enjoyable, such as movies, dinners out and clothing.

A good budget is fluid and constantly changing, so be sure to review it on a regular basis. This allows you to notice changes and adjust accordingly.

2. Determine Your Fixed and Variable Expenses

As you build your budget, it’s important to take a look at your fixed and variable expenses. Fixed expenses are those that remain the same each month and typically include costs such as your rent or car payment, utilities, personal care and entertainment (concerts, movies, sporting events).

The 50/30/20 rule of budgeting suggests that you allocate 50 percent of your income to things that you need, 30 percent to nonessential spending and 20 percent to savings. This method helps ensure that you’re paying your essential bills and saving money each month.

To determine your fixed expenses, go back over your past bank and credit card statements and add up every expense that you know for sure you’ll continue to incur each month. For your variable expenses, try calculating an average by looking at your costs from the past year and then dividing by 12 to get a monthly estimate. This will help you plan for the unexpected, such as a broken air conditioner or a visit to the emergency room.

3. Create a Spending Plan

Using the information you collected in Step 2, build out your spending plan. Start with a list of your household’s fixed expenses. These would include a mortgage or rent payment, utility bills, and any installment loan payments such as for a car, student, or personal loan. For the remaining categories, use a best estimate to budget for each month’s cost (you can use past credit card or bank statements to get an idea of what these costs may be).

Once you have your monthly spend plan set up, make sure it reflects your priorities and life circumstances. Review the budget periodically and tweak it as needed.

If you need help sticking to your budget, consider enlisting the support of an accountability partner. A good accountability partner will be encouraging and supportive, but bold enough to hold you accountable. Also, try to schedule a monthly budget meeting with an accountability partner so you can check in and talk through any challenges you may be facing.

4. Track Your Expenses

One of the most important steps in creating a budget is tracking your expenses. This helps you make sure that your spending is in line with your goals and doesn’t exceed your income.

A great way to keep on top of your expenses is to use a budgeting app that connects to all of your financial accounts, so you can automatically import your transactions and purchases. This will save you time and keep your budget up-to-date.

Another great tool is to create a simple notebook or spreadsheet to record your expenses each month. Whether you use a physical logbook or an online spreadsheet, make sure to transfer the data to your new budget at the end of each week or month.

Keeping up with your budget can be difficult, but it’s essential to your financial health. By setting SMART goals, choosing the right budgeting tools and tracking your expenses, you’ll be on your way to making your goals happen.

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