How To Create a Budget You Can Actually Stick To

A happy / excited man looking at this laptop while eating cereal at the kitchen table.

Budgeting is essential to personal finance management. Without a budget, tracking your spending, planning for your financial future, and achieving your goals can be challenging.

In this article, we will provide you with tips and strategies on creating a budget that you can stick to. We will cover how to assess your finances, set financial goals, create a budget, and use technology to manage your budget effectively.

1. Assess Your Finances

Before creating a budget, it’s crucial to assess your finances. This step will help you identify your spending patterns and determine how much money you have coming in and going out.

Here are some key strategies for assessing your finances:

A. Evaluate current spending habits: Take a close look at your spending habits over the past few months. Review your bank and credit card statements to see where your money goes. Categorize your expenses into fixed expenses (e.g., rent, utilities, car payments) and variable expenses (e.g., entertainment, dining out, shopping). This will give you a clear picture of your current spending habits.

B. Track income and expenses: It’s essential to track your income and expenses regularly. This will help you stay on top of your finances and make informed decisions. You can use a spreadsheet, budgeting app, or online tool to track your income and expenses.

C. Identify areas of overspending: Once you’ve tracked your expenses, identify areas where you’re overspending. Are you eating out too often? Do you have subscriptions or memberships that you’re not using? Identifying these areas will help you make adjustments and create a realistic budget.

2. Set Financial Goals

Setting financial goals is essential to creating a budget that you can stick to.

A. Importance of setting financial goals: Setting financial goals is important because it gives you a clear idea of what you’re working towards. Financial goals can help you pay off debt, save for a down payment on a home, or save for retirement. Without financial goals, it can be challenging to create a budget that aligns with your long-term objectives.

B. Types of financial goals: There are two main types of financial goals – short-term and long-term goals.

Short-term goals are typically achievable within a year and may include paying off credit card debt or saving for a vacation.

Long-term goals, on the other hand, take longer to achieve, such as saving for a down payment on a home or retirement.

C. Create a plan to achieve financial goals: Once you’ve identified your financial goals, creating a plan to achieve them is essential.

Break down your goals into smaller, achievable steps. For example, if your goal is to save for a down payment on a home, break it down into smaller goals, such as saving a certain amount of money each month or paying off high-interest debt.

3. Create a Budget

A budget helps you manage your money effectively and gives you control over your finances. Here are some key strategies for creating a budget:

A. Benefits of creating a budget: Creating a budget has several benefits. It helps you identify areas where you can cut back on expenses, prioritize your spending, and save for the future. A budget also helps you track your progress toward your financial goals.

B. Choose the type of budget: There are several types of budgets. The type of budget you choose will depend on your financial goals and personal preferences.

  • Zero-based budget: In a zero-based budget, you start from scratch each month and assign all of your income to expenses and savings, with the goal of having zero dollars left over. This means you have to plan out your expenses in detail each month, and prioritize them based on their importance.
  • Envelope budget: An envelope budget involves separating your cash into envelopes for different categories of spending (e.g. groceries, entertainment, etc.), and only spending the cash in each envelope for its designated purpose. This can help you stay within your budget and avoid overspending.
  • 50/30/20 budget: The 50/30/20 budget involves allocating 50% of your income towards necessities (such as housing, transportation, and groceries), 30% towards discretionary spending (such as entertainment and dining out), and 20% towards savings and debt repayment. This can help you prioritize your spending and ensure that you’re saving enough for the future.

C. Identify fixed and variable expenses: When creating a budget, it’s important to distinguish between fixed and variable expenses. Fixed expenses are regular expenses that don’t change, such as rent or mortgage payments. Variable expenses are expenses that can change from month to month, such as dining out or entertainment.

D. Determine income: To create a budget, you need to know how much money you have coming in each month. This includes your salary, any additional income, and any government benefits you receive.

E. Allocate funds: Once you’ve identified your expenses and income, it’s time to allocate funds to each category. Start with your fixed expenses, and then allocate funds to your variable expenses. Finally, allocate funds to your financial goals, such as paying off debt or saving for retirement.

4. Tips for Sticking to Your Budget

Creating a budget is one thing, but sticking to it is another. Here are some tips to help you stick to your budget:

A. Create a realistic budget: When creating a budget, it’s important to be realistic. Don’t create a budget that’s so strict that it’s impossible to stick to. Instead, be honest with yourself about your spending habits and create a budget that you can realistically follow.

B. Stay organized: Keep your budget organized and easily accessible. Use a spreadsheet, budgeting app, or online tool to track your expenses and income. This will help you stay on top of your finances and make informed decisions.

C. Track progress: Regularly track your progress towards your financial goals. This will help you stay motivated and see how far you’ve come. You can use a spreadsheet or app to track your progress.

D. Avoid temptation: Avoid temptations that can derail your budget. For example, if you’re trying to cut back on dining out, avoid going to restaurants or ordering takeout. Instead, cook at home and pack your lunch.

E. Adjust as necessary: Be flexible with your budget and adjust as necessary. Life happens, and unexpected expenses can arise. Don’t be too hard on yourself if you need to adjust your budget.

5. Use Technology To Help Manage Your Budget

Technology has made it easier than ever to manage your budget. Here are some ways technology can help you stay on top of your finances:

A. Budgeting apps and software: There are many budgeting apps and software available that can help you track your expenses, create a budget, and monitor your progress towards your financial goals. Popular budgeting apps include Mint and YNAB (You Need a Budget).

B. Online tools for tracking expenses: Tools like Excel or Google Sheets can help you track your expenses and income.

C. Automating savings and bill payments: Many banks and financial institutions offer automatic savings plans and bill payments. This can help you stay on top of your bills and ensure that you’re saving money regularly. You can also set up automatic transfers to your savings account each month.

Final Thoughts

Creating a budget is an essential step towards achieving your financial goals. By assessing your finances, setting financial goals, creating a budget, sticking to it, and using technology to help manage your budget, you can take control of your finances and achieve financial freedom.

Remember that creating a budget is the first step toward achieving financial freedom. Sticking to a budget and achieving your financial goals takes discipline, commitment, and patience. But with the right mindset and strategies, you can achieve financial success and live the life you want.

Featured Image Credit: VitalikRadko /Depositphotos.com.

This article originally appeared on Ash & Pri.

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Annika Stepanov

Annika is passionate about personal finance and travel, pouring her extensive experience into her writing on these topics. She has a diploma in Creative English Writing and has been working in the industry since 2016.