How to Start and Stick to a Budget

12/7/2023

A well-developed budget will help you achieve financial freedom. With it, you can ensure your household necessities are covered, integrate extras like travel and entertainment, and plan for future goals. Everyone can benefit from having a defined budget, no matter their age or income. How you manage your money dictates how you live your life, and it will either hinder or help you to reach your dreams.

If you haven’t really kept up with your budget this past year, this is the perfect time to re-evaluate your finances and start the New Year off with a fresh budget. Make it your New Year’s resolution to stick to your budget throughout the whole year. Here’s how to make a budget- and stick to it.

Read More: The Surprise Benefits of Budgeting

Track your spending

Before you create your budget, track all of your spending. You can do this by keeping a log and recording every transaction, saving all your receipts and/or monitoring your bank statements. At the end of the month, you’ll have a more realistic idea of where your money is going. While your fixed expenses, such as rent/mortgage and car payment, generally remain the same each month, your flexible expenses, such as groceries and entertainment, tend to vary from month to month. Tracking expenses will enable you to get the best estimate of your flexible expenses and give you an opportunity to see if you have any ‘spending leaks’ in your budget.

Calculate your income

Now that you have a realistic idea of your expenses, compare it to what you have coming in each month. Add up all monthly net household income, this is the amount left after taxes and other paycheck deductions. Record this information in a log or spreadsheet as this will be your guide moving forward. Your budget will enable you to understand where you stand financially. Are you breaking even, falling short, or is there money left over? Using your budget as a tool will help you stay on track and figure out the best strategies to get your money to work for you.

Reviewing your spending and your income will help you identify areas of concern before you make your budget, as well as help you allocate where your money should go each month. If you’re spending more than you earn each month, reviewing your spending and your income will help you see where you need to cut back.  Just knowing how much you’re spending in certain areas can have a huge impact on your finances and give you the ability to reign in some overspending habits you might not be aware of.

Read More: How to Budget When You're Broke

Are there any financial changes you can make?

Take some time to analyze your budget and spending habits to determine what changes you can make to help get you closer to your goals. Generally, the best way to balance out a budget and/or increase your savings capabilities is by increasing income or decreasing expenses. Review your spending habits to see if you have any areas you may be able to cut back by developing new habits such as cutting coupons or meal prepping. Consider ways you may be able to increase your income as well. Perhaps you can take on a part time job, or maybe you can turn a fun hobby into a money-earning side hustle. Think you’re too busy for a side hustle? Check here for our list of side hustles for hustlers.

Review your budget regularly

Your budget will change over time, so make it a point to review it on a regular basis. When reviewing your budget, ask yourself key questions such as: Are you meeting your goals? Can you afford to save a bit more? Are you regularly struggling to make ends meet with your current spending? It’s important to check in with your budget and adjust as needed. Adjust your budget according to what you’ve learned from the previous months. Your life will change over time so adjustments will need to be made. Once you’ve got a good baseline budget, however, making tweaks is easy.

Build an emergency fund

One reason a person’s budget fails is that they haven’t saved for emergencies. Without having money put aside for emergencies, any unexpected expense can completely derail a good budget. If you don’t have an emergency fund already, include a category in your budget for emergency savings. The suggested starting point for your emergency fund is three months’ living expenses. After you’ve securely saved three months’ expenses, work your way up to saving a total of six months of living expenses. Have a certain amount of your paycheck designated for your emergency fund and make these payments automatic. This way you won’t even have to think about going out of your way to put money into your emergency fund. Having an emergency fund will help ensure your budget stays intact. To learn more about emergency funds click here.

Stay consistent

Sticking to a budget can be difficult, especially if it’s not a habit you’ve had in the past. Just like building any new habit, creating systems will set you up for success. It’s easy to divide expenses into categories on a spreadsheet or paper, but actually changing your habits is a much bigger hurdle. If you’re a new budgeter, start small rather than trying to slash spending right away. Here are some ways to help you stick to your budget.

• Make it automatic: Just like your emergency fund, make payments to certain budget categories automatically. Many bank apps allow you to set up automatic transfers to savings accounts. If your income comes in on a regular schedule, consider doing it so you don’t even have to think about moving money to savings.
• Pay with cash: If you’re grocery shopping or any kind of shopping in person, only bring cash with you and leave your card at home. Only bring the amount of cash you allotted for that shopping trip in your budget. Try only making purchases with cash for a month and see if you save money.
• Hold yourself accountable: If you know you’re going to need support, find yourself an accountability partner, such as a like-minded friend. Schedule regular money check-ins with yourself or your accountability partner to review your expenses, progress toward goals, and credit card and checking account balances.
• Skip big purchases: If large purchases aren’t already in your budget, they can derail your budget. Try implementing a waiting period for any non-essential purchases. This can be anywhere from 24 hours to a week or more, depending on the size of your purchase.
• Keep your goals in mind: Always keep your goals in mind as they will help keep you in check. Whatever your goal is, use it as a motivator to keep you going in the direction you want to go.

Read More: How to Manage Your Time and Thrive

Creating and sticking to a budget comes down to finding out what works for you. The key to long-term budgeting is finding the best system for your personality and needs. Patience is essential, as it will likely take time to adjust to your new budgeting lifestyle. Before you know it, you’ll feel the benefits of your budget when you start to make real progress toward your financial goals. You’re guaranteed to make a mistake or two along the way, but sticking to your budget will pay off in the end.

 

 

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