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How To Create A Budget That You’ll Finally Be Able To Stick To

March 12, 2021

So many people avoid even just the thought of making a budget, as it seems like a daunting and outdated task. However, it doesn’t have to be! In fact, it is one of the most important things you can possibly do for a successful financial future and the overall well-being of your finances. In addition, creating an emergency fund will protect you from unexpected expenses, a budget keeps you from overspending, and this will all help you stay out of debt or pay down your debt in a timely manner.

Unfortunately, the word “budget” kind of makes us cringe, like the word “diet”. But, unlike dieting, budgeting isn’t a “one size fits all” ordeal. There is a budgeting plan out there for everyone, and mapping out your financial future is critical to your own sanity. Keep reading to learn more about budget plans that you will finally be able to stick to – for good.

Why You Really Need A Budget

Still not convinced? Well, though it might feel like somewhat of an outdated concept, having good money skills is truly timeless. And, creating a budget is basically an easy way to tell your money where to go instead of wondering where your money went. Your own personal budgeting plan will be a surefire way to achieve your financial goals, and can even prevent you from going into debt. A budget also has the ability to help you get rid of unhealthy spending habits. This is a highly-rewarding endeavor in which you’ll learn how to discipline your spending habits which is again, timeless.

How To Budget Your Money

The first thing you need to do is ignore what your parents, friends, family, coworkers, and everyone else has told you about what works for them and how they budget their money. What works for them may not work for you – remember – one size doesn’t fit all. Instead, start by writing down your own personal goals and take your financial situation into account. You need to start by setting goals for your finances and ask yourself what exactly you’re hoping to do with your money both short and long-term. Are you trying to pay off student loans? Are you looking to buy a home?

Whether your goal is to max out your 401K or pay off your debt, keeping your goal in mind will help you learn how to budget your money appropriately. As an example, if you are trying to pay down high-interest debt rapidly, you will more than likely need to allocate more money for savings and less money for non-essentials.

It’s time to start taking stock of your income once you have a goal in mind. List out all of your monthly income, such as salary, benefits, side-gigs, and any other reliable source. After you know how much you bring in, you should be able to calculate how much you’re able to spend, meanwhile still saving or paying off debt. Monthly budgets are the most popular, but if you feel like weekly or bi-weekly budget plans work better for you, go with it! From there, you can break down how much you are able to spend by using the following tips.

Break It Down Into Categories

In order to successfully break your budgeting down to each category, you need a way to organize all of it. This can be done by spreadsheet, a tracking app, or simply by pen and paper. The most conventional budgeting concept is to have a category-by-category breakdown for spending limits. This plan is for people who are organized and very detail-oriented by nature – you must be disciplined enough to stick to your spending accounts for each category.

If this does sound like it will work for you, create your own budget by analyzing the last few months of your spending habits. Categorize every single charge or withdrawal by printing out credit card or bank statements. Now look at your categories – groceries, entertainment, shopping, eating out, etc. and calculate a reasonable amount to spend each month as well as setting a limit for yourself. Take some time to also calculate essential categories such as rent/mortgage, groceries, utilities, and insurance first – these costs rarely change every month and bills are not optional – you have to pay them.

Then, subtract your budgets from your total income and the remaining balance is what you will save every month. Keep adjusting non-essential categories if you feel like you aren’t saving enough – the experts suggest putting 15-20% of your income towards saving or paying debt.

Method #1 – 50/30/20

This method (50/30/20) is extremely popular for people who don’t want to use more restrictive methods of budgeting, such as the category method we mentioned previously. The 50/30/20 method is so popular because it leaves room for not only debt and savings, but wants as well, meaning that you don’t have to deny yourself of everything.

So let’s break it down – with the 50/30/20 method, 50% of your take-home pay will go towards your essential costs of living, 30% goes towards your wants, and 20% goes towards debt payments or savings. NerdWallet has an easy-to-use 50/30/20 budget calculator to aid you and it will break down how much you’re able to dedicate towards each category depending on your take-home pay.

The major appeal to the 50/30/20 method is that it will break down your spending into three categories, as opposed to the countless categories you will have with a more detailed budgeting method.

Method #2 – 80/20

The 50/30/20 method might seem a bit too restrictive, so your next best option will be the 80/20 method, which is way simpler. This is especially beneficial if you live in a city with a high cost of living. This method focuses solely on keeping track of just one number – the 80% of your take-home pay – which is arguably much easier than keeping track of more money.

The only challenging part of this method is maintaining balance within that number and ensuring that spending in other categories doesn’t add up too quickly. That 20% should be committed to your savings or paying down debt – set up an automatic transfer from every paycheck. After that money has been transferred to a debt repayment account or a specified savings, you’ll be able to spend the rest.

If these simplified budgeting methods seem a bit too overwhelming, you might consider working with a financial planner in order to find a system that works best for you.

So, how do I stick to my budget plan?

Let’s talk about how you will  actually stick to your budget after making one. Consistency is key. But, following your budget plan really is a challenge on its own. And, you won’t actually have a large savings cushion unless you stick to your budgeting plan for longer than a few months. Fortunately, you are not on your own here. There are tons of different systems and tools available for you to use that can help you track your spending. It’s up to you though to be accountable. You need to record every dollar that you spend, whether you download an app or keep it old school with pen and paper. When your numbers stack up and get close to your spending limit, you need to reign in your spending.

Start By Recording Everything

If you’re more of a hands-on type of person, start recording everything via spreadsheet or pen and paper. Another great and easy option is to download an app for it, especially if you’re always on the go. One of our favorites is Spending Tracker by MH Riley LTD – as an added bonus, it’s free and easy to use! However, this method does require diligent recording after every transaction (or at the end of your day), so it isn’t for everyone. Whichever route you take, it’s vital to keep a close eye on your spending.

Create A Spending Account

 Another very popular option is to create a spending account. This means dedicating an entire checking account to just spending. Keep your 80% take-home pay in that account at the beginning of your budgeting period. This enables you to spend whatever is in your account, but once you hit zero, you are done spending until your next budgeting period rolls around. This is a great option if you want to know how much you’re allowed to spend and how much you have left at a quick glance.

Take Time To Continuously Reassess Your Budget – Final Thoughts

So you’ve created your budget, you’ve taken the appropriate steps to make sure you follow the budget – what now? You’re definitely not done forever. Expenses and income both shift regularly, which means that it’s pretty easy to fall off the wagon. Every few months you should check in on your budgeting efforts. Are you staying within your spending limits? Is there anywhere you could maybe cut back more, or do you need to adjust your budget a little bit in order to live easier?

Make shifts as needed, and always be honest with yourself. It also might be time to reassess your budgeting plan if you’ve had a major life change such as a promotion or marriage/growing your family. You’ll always be moving closer to your financial goals if you maintain your budget and follow the tips listed above.

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Is Debt Settlement a Good Idea? Debt settlement and debt consolidation are not the same. Learn more about the process (and consequences) of settling your debts before going down that path.