How to Create and Stick to Your Budget

During this journey, I have been asked many times from friends and family how to create a budget and then actually stick to it. So, I thought this might be a great topic to write about. Since budgets will change slightly each month due to variable expenses, it is necessary to create a budget at least once each month to account for any fluctuations in income and expenses. Below, I have provided some basics about budgets before explaining how to create and stick to your budget.

What is a Budget?

A budget is a financial plan or roadmap for your money. It simply assigns a name to every dollar. Budgets tell your money where to go, so that you don’t have to wonder where your money went. Budgets should also include things you love, within reason of course.

Why do you Need a Budget?

Budgets are the key to determining what your true possibilities are. It will show you the areas which need improvement. There is no way to accurately envision where you are trying to go without first accessing where you are currently. Using a budget is a must in order to reach any financial goals. We should utilize budgets for several reasons. However; I have personally used budgets in the following ways as a/an:

1. Organizational tool to keep track of income, expenses and due dates

2. Method to begin attainment of financial freedom

3. Way to reach financial goals

4. System to pay off debt

5. Tool to build wealth

6. Calculator to provide guidance on how much to give or donate to others

How to Create a Simple Budget

There are five basic steps to creating a simple budget:

1. Determine monthly income

This should be the net after taxes and other deductions. Income should include salary/wages from a job, money earned from side-hustles or hobbies, child-support, alimony, retirement, disability etc.

2. Write down all fixed and variable expenses

Besides your regular expenses such as rent/mortgage, food, gas, electricity, cable/internet etc., this category should also include any misc. items that you will need to purchase. i.e. subscriptions, renewals, pet care, prescriptions, car/flood insurance etc.

3. Calculate income minus expenses

Take the sum of your expenses and subtract it from your total income. Ideally, the goal is to have more income than expenses.

4. Evaluate your spending habits

Determine where you are overspending. Figure out which expenses can be eliminated from your budget. Be realistic!

5. Repeat the process

You can do this weekly, monthly or whichever works best for you and your family.

How to Document Income and Expenses

The other thing you will need to think about is how you want to actually document all of your income and expenses. Are you more comfortable using a pen and paper vs. Microsoft Excel or would a budgeting app work best? Honestly, I use both.

In my household, we do a bi-weekly budget since both my husband and I earn income twice per month. I use one large sticky note for each pay period, which I keep inside of my 18-month pocket calendar. The sticky note lists out all of the bills and additional costs that we expect to incur during that particular pay period. When each item is paid off, I check it off on the sticky note. If I’m unsure about any of the one-off expenses, I simply look back to the previous year’s sticky note and pull from there. Then I check my email to ensure that there are no new upcoming items due during a particular pay period. Now for the yearly budget, I use Microsoft Excel, because it has combined expenses for each of the 12 months. 

How to Stick to the Budget

There are several ways to help you stick to your budget. Find what works for you and run with it. I have provided you with a few tips below to help you get started.

1. Keep your budget visible

This could be either via a budgeting app, excel file, sheet of paper or in my case, a sticky note. You can also change the method if you find that something doesn’t work for you.

2. Be conscious of spending

The method that I found that works best for my husband and I is to leave all bill money in the joint checking account. Then we transfer his misc. money into his personal checking account. My misc. money is withdrawn on a bi-weekly basis from the ATM in the form of cash. The misc. money category can include whatever you want it to include. Ours include grooming, entertainment and gas. This helps us to keep track of what is being spent and we are not allowed to overdraw the account because once the misc. money is gone, there’s no going back into the account for bill money looking for more.

3. Set goals for your budget

For example, if your purpose in budgeting is to pay off debt, then your budget should reflect this. All of your fixed and variable expenses should be paid first. Then all remaining funds should be dedicated to paying off your debt!

4. Change your mindset

Transformations cannot occur if you don’t first train your mind to do something different. Everyday will be a challenge, as there is always something vying for your attention AND your money. There will always be some gadget, shoe, or purse than is better than the one you have. However; you have to remain focused and keep your eyes on the prize.

Final Thoughts

Creating a budget can be challenging if you don’t really understand the power it can have over your life. The first step is to just start by documenting all of your income and expenses. This will make it more visible to you. There’s something about seeing everything all laid out in front of you that starts to really make you think about where you are financially and in life. If you don’t make your budget a priority, then you won’t stick to it. As the old saying goes, “Out of Sight, Out of Mind.” If you still need additional information on budgets, then read 7 Strategies to Help You Budget Better with Your Spouse.