Budgeting Saving

7 Steps to Make a Budget You Can Stick To

Written by Rebecca Lake

Planning to save money and actually doing it are two very different things and closing the gap starts with having the right tools. A carefully crafted budget is the most effective weapon you can have when taking charge of your financial destiny is the order of the day.

Making a budget isn’t rocket science but you do need to know how to approach the task. Following these simple steps can put you on the fast track to saving more in no time.

1. Check your mindset

Some people wholeheartedly embrace budgeting but others avoid it like the plague, and it’s often because they don’t really get the concept behind it. They adopt this mentality that living on a budget is all about restricting what you can do with your money when actually it’s designed to give you financial freedom.

In the simplest sense, a budget is an accounting of what you’re spending each month versus how much money you have coming in. If you look at your budget as a plan for how you’re going to use the resources that you have instead of a form of financial punishment, it’s much easier to stick to it and make it work for you in the long run.

2. Track your variable spending

Getting your budget going starts with figuring out where all of your hard-earned dollars are going. That means getting a grip on your variable expenses, which includes things like clothing, entertainment or anything else that’s not a regular monthly bill.

There are a few different ways you can track your spending and the method you choose really depends on your preference. If you like to do things by hand, you could just write down everything you spend at the end of the day. If you want a record keeping method that’s a little simpler, linking your checking or credit card accounts to a budgeting app like Mint is a hassle-free way to record expenses.

You can also keep tabs on what you’re spending with a spreadsheet and there are plenty of free and low-cost versions available online. When you’re comparing paid spreadsheets to the free options, make sure you check out all the different bells and whistles to see if the cost is worth it.

3. Add up your fixed expenses

Once you’ve gotten a grip on your variable expenses, it’s time to turn your attention to those expenses that stay the same from month to month. That means things like your rent or mortgage payment, insurance premiums, cell phone bill, utilities, and debt payments. These are the expenses that you need to be accounting for first in your budget each month.

You also need to factor in fixed expenses that you pay periodically throughout the year. For example, if you’re self-employed you’d want to include your quarterly estimated tax payments. If you own a home, you’d need to account for things like property taxes and homeowner’s insurance.
If you’re doing your budget on a monthly basis, the easiest way to fit these costs in is to average them out annually. If your property taxes come to $700 a year, for instance, you’d need to allocate $58 a month for that expense category. Breaking it down monthly takes some of the hassle out of coming up with the money all at once when the bill is due.

4. Subtract all your expenses from your monthly income

Now that you know what your fixed expenses are and what you’re spending on discretionary items, you can move on to the next step. That means adding up all of your expenses and subtracting them from your income.

This step shouldn’t be too difficult if your check is roughly the same every payday. If your income isn’t consistent because you freelance or work on a tip basis, however, you’ll need to take a different approach.

First, establish a baseline of what you need to make each month to cover the essentials. Next, look at your income over the last six to twelve months and calculate what you’re making on average and use it as your guide for setting your budget. That way, you can save the extra in months when your income is higher to counterbalance those periods when it’s lower.

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About the author

Rebecca Lake

Rebecca Lake is a personal finance writer and blogger specializing in topics related to mortgages, retirement and business credit. Her work has appeared in a variety of outlets around the web, including Smart Asset and Money Crashers. You can find her on Twitter at @seemomwrite or her website, RebeccaLake.net.

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