Simple Tips for Making and Sticking to a Budget

Anyone, no matter how much or how little you earn and spend, can benefit from a budget. It’s an immensely valuable tool that will help you take charge of your finances and set yourself up for success. Long-term financial goals can take time, but a budget is a great step toward achieving them.

Although the principles of budgeting are pretty simple, it can definitely take some discipline to make good financial habits stick. Let's take a closer look at how to make a budget and how to stick to your monthly budget — you might be surprised how quickly small savings add up!

8 Steps to Creating a Budget

Budgeting doesn’t have to be a big, complicated task you can make it as simple as you would like! Whether you prefer to write it down on paper, or create a detailed digital spreadsheet, your monthly budget should be a helpful tool, not a chore. These are some key steps to creating a budget that can help you get started:

1. Determine your net income
   The first step in creating a budget is to determine your net income. List out all your regular sources of income, including your take-home pay, tips and other income, such as alimony or child support. Even if your income varies from month to month, use your best estimate based on past history. Keep in mind that your take-home pay is the amount of money you’re paid minus the taxes that are withheld and any other deductions, like health insurance premiums or deposits into flexible spending accounts. The total amount per month you net is the starting place that you will be building a budget around.

2. Create a list of your regular monthly expenses
   There are certain fixed expenses that you must pay every month. This will vary for everyone, but think about your rent or mortgage, utilities, internet, cell phone service, transportation, insurance, loans and credit card payments. Do you also have monthly subscription services like Netflix and Spotify? Those $10 charges can definitely add up! Do your best to account for each of these predictable expenses. An [online budget calculator] can help you think of your expenses and add them up. If you are budgeting for a family, you may also factor in childcare expenses, like daycare, babysitting and tuition.
   

3. Plan for your variable monthly expenses
   You’ll also likely have some variable monthly expenses, or expenses that are a different amount every month. Some common examples are groceries, gas and utility bills. If you track these expenses over time, you’ll likely be able to predict an average cost that you then can factor into your budget. In the meantime, it’s best to overestimate and then have some money left over.

4. Calculate the difference
   Now that you know your net income and your expenses, calculate the difference. This will help you get a sense of how much you can save and how much flexible income you’ll have left for fun money. A common misconception is that if you’re spending close to what you’re earning, you might as well not set aside savings. But, the truth is, even just $10 a week can add up over time. Create a plan for this difference between your income and your expenses, no matter how large or small, and be sure to set money aside.

5. Identify long- and short-term financial goals
   Before you start making your budget, take some time to think about your lifestyle, your goals and your financial situation. Do you want to pay down some debt? Are you saving for a home, new baby, car or big trip? Do you need to build an emergency fund? Do you know how much you should be saving to retire comfortably? The answers to these questions can help form part of the framework for your budget. You might want to make separate accounts for long-term goals or keep track of how much money in your savings account is allocated for, say, your upcoming vacation.

6. Base your budget around your priorities
   Once you’ve identified your goals, it’s helpful to choose which are most important. Ask yourself, “Am I trying to determine whether to pay off debt or start saving for retirement?” If, for example, your main goal is getting out of debt, you should focus your budget on paying down those bills first, especially if you have any debt with high interest. Once you start chipping away at these initial priorities, you can expand your budget and your savings plan towards your next set of goals. If you try to plan around too many goals too fast, you might start feeling overwhelmed and quit your budget altogether. Remember, take it one step at a time!

7. Look for ways to cut your expenses
   Bad habits can make it hard to save money and stay on budget. To get started, identify one or two of your worst spending habits and work on those first. For example: If you buy coffee every morning and lunch every afternoon, try brewing your morning coffee at home and packing your lunch. Two small changes like these can lead to big savings over time. Of course, you don’t want to be too restrictive. If you cut all excess spending too quickly, you’ll inevitably break your budget. Be realistic and find a happy medium between indulging and being conscious of your savings.

8. Prepare for the unexpected
   It’s a fact of life. As hard as we try making a budget and sticking to it, life can throw (expensive) curveballs our way. Just when your finances are cruising along, your car breaks down. Or your water heater stops working. Or you completely forgot about the gift for your cousin’s wedding next weekend. Whatever it is, put aside some money each month to give yourself some wiggle room. This way, you’ll be able to handle these sudden costs without worrying about your budget. Many choose to create a separate account that is strictly for their emergency fund that is out of sight, out of mind. Just be sure that this money is in an accessible place, versus in stocks or funds that aren’t quickly accessible.

8 Tips for Sticking to Your Budget

Now that you’ve created a budget, the next step is following through! It’s important to hold yourself accountable for the goals that you’ve set  it’s easier said than done, but seeing your account balances increase as you save will be an amazing reward that will provide you with peace of mind. Here are some tips on how to stick to a budget:

1. Sleep on big purchases
   Many people have an emotional reaction to spending money, and you might be spending more than you realize on random impulse purchases. Of course, there are times where you’ll have unexpected expenses, or you want to make a spontaneous decision. That’s all right from time to time, but for bigger ticket items, it’s best to give yourself a waiting period. Next time you want to make a purchase, take at least 24 hours to think it through and see if you still really want to make the purchase.

2. Plan ahead and create shopping lists
   Before you go shopping, make a list of what you need. Having a plan will help minimize impulse spending and make sure you only spend money on the things you really need. If it’s an option, consider placing an order online for in-store pick-up. That way, your items are already prepared for you and you won’t get distracted by other things as you wander the aisles. Think about what items you frequently buy that are non-negotiable essentials and which are less necessary. This doesn’t mean you have to cut out “fun” things completely, but you’ll want to take those purchases into account when you budget for your shopping list.

3. Pay yourself first
   When you add money to your savings, it’s like you’re paying your future self. Many choose to set up an auto-deduction from their paycheck that will be deposited into their savings account, retirement fund, emergency fund or investments. This way, your savings are taken care of before the money goes into your easily accessible checking account. If you don’t want to set up an automatic transfer, it’s still helpful to move the money to the appropriate savings avenue as soon as you get paid. The longer you wait, the more likely you might break your budget and spend it.

4. Never spend more than you have
   If you make purchases with credit cards, it can be a slippery slope to spending more than you have. Keep close tabs on your budget and your balances to ensure that you are spending within your means. By overspending, you might quickly end up with additional fees and interest. You could even take it a step further and think of this as not spending more than you have in any particular budget category. If you set $200 as your restaurant budget for the month, don’t allow yourself to incur an “overdraft” fee.

5. Convert costs to an hourly rate
   In many cases, we fail to consider how much work it takes to afford what we purchase. Try to think about expenses in terms of how much work you’ll need to do to pay for it. For example, if you’re making $25 an hour and the item you want to purchase costs $75, ask yourself if the item is really worth 3 hours of work. Your time is valuable, so it’s a good idea to keep in mind the true cost of your purchase. Thinking in these terms can help you stick to your budget.

6. Set spending “buckets”
   One way to hold yourself accountable to your budget is to set a certain limit on each category of spending. For example, if you tend to overspend at the mall, set a $200 limit on clothing for the month. Some savings accounts will even allow you to manage this digitally. That way, instead of seeing one large sum, you can be aware of the actual budget for each type of expense.

7. Track your spending consistently
   If you are keeping track of what you are spending, it is easier to see where your money is going and you’re more likely to discover areas where you can cut back and save more. There are a lot of fantastic resources that allow you to track your spending digitally. Apps like Mint or You Need A Budget (YNAB) can directly connect to your bank account and show analytics on your spending. Whether you choose to track daily or set aside time weekly to go over your spending, it’s important to be consistent. The more disciplined you are with tracking, the easier the habit will become.

8. Track your savings successes
   Just as it’s important to track your spending, it’s important to keep track of your successes! It’s a great feeling to hit a savings goal and to see the fruits of your budgeting. Whether it’s saving your first $1,000, or just a morning where you decide to make coffee at home versus buying one, celebrate those victories and pat yourself on the back. Stopping for a moment to give yourself credit can be just as rewarding as keeping those dollars in your pocket. Besides, it gives you time to set your next goal to achieve.

Keep Going

Although each of these tips can apply to most people, there is no one-size-fits-all method to budgeting. Since everyone’s financial situation and preferences are unique, you might have to go through some trial and error to find what works best for you. If you continue to find yourself straying from your budget, try a different approach until something sticks.

Once you find a budgeting plan that works for you, your hard work will certainly pay off! We hope these budgeting tips have been helpful, and we wish you the best of luck on your financial well-being journey.