How To Create And Stick To a Budget

How to Build and Stick to a Budget – For many consumers, a solid budget is the cornerstone of a well-balanced financial existence.

“A budget is an important tool,” says Jamie Ebersole, a licensed financial planner in Wellesley Hills, Massachusetts. “This helps you to plan and make plans for future objectives.”

Experts believe that there is no one-size-fits-all approach to budgeting and management. Instead, savvy shoppers may need to try a few different strategies, budgeting methods, or techniques to find the one that better suits their needs. If you’ve tried and struggled to budget in the past, changing up your budgeting strategy might be the key to potential success.

The answers to these commonly asked questions about developing a budget – and sticking to it over time – are given below:

  • What is a budget?
  • How to make a budget.
  • How to stick to that budget.

Read on for more information on how to create a budget and stick to it.

What Is a Budget?

“A budget is an organizing tool that lets you determine how you want to spend your money,” says Douglas Boneparth, president of Bone Fide Wealth in New York City and co-author of “The Millennial Money Fix.”

This budget usually requires you to keep track of two things: your after-tax income and your monthly spending. On the surface, you want your monthly expenses, including savings deposits and mortgage payments, to be less than your take-home pay. After that, you can change your spending to achieve your targets, pay off debt faster, or treat yourself.

How to Make a Budget

Here are steps to follow when creating a budget:

Take inventory of your finances.

Setting up a budget takes some time and effort at first, but once you get the hang of it, experts say you should be able to stick to it with less effort.

To keep a handle on your expenditures, Ebersole suggests monitoring them for a few months. That doesn’t mean you have to keep a notebook for every penny you spend. For example, you might use a single credit or debit card for a few months and monitor your spending on the statement.

If it’s the beginning of the year, looking over last year’s annual bank statement will help you get a sense of how much you spent. You can track your spending with apps like Mint or Tiller, or you can use an Excel spreadsheet to track and categorize your expenses. Boneparth advocates this more manual, old-school method for newbie budgeters. He claims that this forces you to pay attention to where your money is going.

Know your financial goals 

According to experts, for budget-conscious people, understanding what goals you want to achieve and how much they’ll cost is highly motivating. Boneparth explains, “They’re what gets you to change your habits.”

So, think about what you want to do for a few moments. Will you continue to make payments on your student loans? Why don’t you go on a vacation? Do you want to get out of the habit of living paycheck to paycheck? Experts believe that sticking to a budget requires deciding what you want to do and how much money you’ll need at the end of each month to make it happen.

Understand that there are two sides to a budget 

Budget planners also focus on the spending side of the equation. They zero in on the expenditures that are causing their budget to collapse. They avoid buying coffee every morning, forego pricey avocado toast, and refrain from shopping for months. While these are significant changes, new budgeters should bear in mind that there is another way to increase your spending plan’s effectiveness.

The sales side of your budget – the money coming in – is also negotiable. Consumers may increase their take-home pay by starting a side business, campaigning for a raise at work, or even changing careers.

Read Also: Six (6) Money Management Mistakes Millennials Often Make

Note that fixed expenses such as rent, cable, and car payments can all be reduced. To save money on rent, you might, for example, take on a roommate. You should cut the cable cord to save money on your cable bill. Selling your car and relying on public transit would lower your commuting costs.

How to Stick to a Budget

Here’s how to maintain your budget:

Choose a budget system that works for you.

Hundreds of sample budgets and spending breakdowns can be found on the internet. Your long-term ambitions, age, expenses, and current living conditions all influence the type of budget you choose. The key is to find a structure and breakdown that works for you.

According to Stephanie Genkin, a licensed financial planner and the founder of My Financial Planner LLC in Brooklyn, one budget that is both simple and fruitful comes from an unexpected source: “All Your Worth: The Ultimate Lifetime Money Plan,” a book co-authored by Democratic Senator Elizabeth Warren of Massachusetts. Warren suggests a 50-20-30 budget, which allocates 50% of after-tax revenue to needs such as rent, groceries, and electricity, 20% to savings and debt repayments such as student loan and credit card payments, and 30% to wants such as gym membership and dining out.

The good news, according to Genkin, is that once you’ve found out and automated the savings and needs categories, all you have to do now is keep track of the 30% “wants” category.

Read Also: Money-Saving Challenges

These numbers, according to Genkin, are only a starting point. If you have a big savings goal in mind, such as a wedding, you might want to increase your savings to 25% or 30% and decrease your spending on wants to 20% or 25%.

Boneparth discovered that breaking down spending into “fixed” expenses such as a mortgage, savings, and internet access and “variable” expenses such as food, clothing, and services helps him create a budget. He believes that that variable form should be the focus of your regular or monthly budgeting efforts.

If those strategies don’t work, search online for sample spending plans and choose the one that best suits your lifestyle and financial situation.

Explore budgeting apps, software, and other tools

There are a variety of budgeting apps and resources available, so try out a few to see which one works best for you.

Mint’s digital app, for example, syncs with your bank and credit cards to help you keep track of your spending and accomplish your goals. PearBudget is a user-friendly, collaborative online budget spreadsheet. Do you want to turn off your machine and disconnect from the internet? The “envelope process” is a cash-based spending tracking system that involves dividing your cash into individual paper envelopes, each earmarked for a different spending category. The envelope method is essentially a digitalized version of the Goodbudget method. You can also use your trusty Excel spreadsheet to keep track of your revenue and expenditures.

Take note of why budgeting fails.

Just like a diet or fitness schedule, you’ll need to make an effort to stick to your budget month after month and year after year. To begin, you must decide what motivates you. Is it possible to budget using a smartphone app? Is it a matter of setting – and achieving – modest financial goals?

Then you’ll have to figure out a job schedule that helps you to stick to your budget. Unrealistic spending expectations are a surefire way to fail at budgeting, just as promising yourself that you’ll work out every day and eat only kale is a surefire way to burn out on a fitness plan.

Genkin warns that “counting every single cost is a surefire way to drive yourself insane.” “Don’t give up and say, ‘I’m not capable of doing this.’ To make a budget for yourself, try a few different approaches.”

So, look for ways to simplify your necessary expenses so that you just have to monitor a few categories each month. Look for apps and online services that you enjoy using as well. Make sure you have enough money in your budget to go out for a night or go shopping for a few items. A budget that you refuse to follow is doomed to fail.