Do you suck at budgeting? Do you have a budget? If so, have you been able to stick to it? Since you’re here reading this article (and I’m glad that you are) I think it’s a fair assumption that you need a little help in this department. And that’s okay!
You’re not alone! According to Gallup’s annual Economy and Personal Finance survey, only 1 in 3 Americans prepares a detailed budget each month that tracks their income and expenses. Which means most people don’t budget.
Creating a budget may seem like a foreign concept if you’ve never done it before. And if you do create a budget, how are you actually supposed to use it? I’ve heard so many people say that they suck at budgeting so they’ve stopped trying. I used to be in the same boat. I used to be an emotional spender (more on that topic at a later date) and shopping made me feel better…or so I thought. Then it hit me. If I ever wanted my dreams of becoming financially independent to become a reality, then I needed to get it together!
I needed a plan. I needed to understand where my money was going every month. I needed to start saving more money if I ever wanted to retire. I needed to save more money so my husband and I could buy our first home. And thinking about all of that was overwhelming. So that’s when I got serious and decided that a budget could help me with all of these things and get me to where I needed to be.
Why everyone needs a budget
I know, I know. It’s easy to say, “I need a budget.”
But you may not realize just how important budgets really are and how much they can help you. If you don’t already have one, then I guarantee that you’re spending a lot more money than if you did. Budgets allow you to create a spending plan for your money. You’re essentially telling your money where to go instead of wondering where it all went every month.
It ensures that you will have enough money for the things you need and the things that truly matter to you. Following a budget will also help you save for your future and if you’re in debt, it can help you work your way out.
How to stick to your budget
Most people quit their budget before seeing it’s full potential. How can you prevent straying from your budget or quitting altogether?
Think about the purpose of your budget. Really think about it. What do you want to get out of it? Are you struggling with living paycheck to paycheck? Is debt keeping you up at night? Do you have dreams to buy a home? These reasons need to be important to you.
When you identify your whys, write it down. Keep it somewhere you can see regularly. This way you can keep it in mind because you know how the saying goes, “out of sight, out of mind.”
Now that you have your reasons, you’re one step closer to creating a budget and sticking to it. The reasons behind your budget (your whys) will help you stay motivated along the way, but it’s only a piece of the puzzle.
We all start with good intentions but it’s easy to get distracted, lose motivation, and willpower along the way. Even if you have some pretty darn good reasons why you started budgeting in the first place.
The other piece of the puzzle is being realistic when creating a budget in the first place. If you have a budget that is too restraining, your chances of sticking to it are slim to none. The last thing you want is to feel like you’re missing out on life and resent your budget.
Don’t get me wrong, you’ll most likely have to cut some things out or put them on the hold, for now, depending on your financial situation. But it doesn’t have to be a permanent change unless you decide you want it to be.
Something that’s helped my husband and I stick to our budget is building in fun money and also rewarding ourselves when we reach milestones. Celebrate your milestones whether it be paying off a credit card, saving your first $1000, or finally getting out of debt. Treat yourself by doing something you enjoy like getting a pedicure, going to the movies, or eating at your favorite restaurant. It doesn’t have to be extravagant, just something that can help you avoid the burnout.
Step by step instructions on creating a simple budget you can actually stick to
To make your life easier and budgeting simpler, download our free budgeting template and use it as you complete the steps below.
Step 1: Determine your monthly income
Write down your monthly income after taxes. This is income from your job, any side hustles, and even interest from a savings account.
If you have an irregular income, don’t worry! This will work for you too. Estimate how much you’ll make by using the previous months as a guide. I would underestimate the amount just in case you earn less than expected that month.
Step 2: Write down all your fixed expenses
Compile a list of all of your fixed expenses. Write down each expense and how much goes out every month. These are expenses that you have every month that never change. This includes your mortgage, car payment, cable bill, etc.
Step 3: Write down all your variable expenses
Review your variable expenses. These are expenses that change month to month like groceries, power bill, entertainment, etc.
I have all of my accounts connected to Mint, which is a free tool that helps track all of my expenses. I’m able to easily see my expenses from the past few months all in one place. This makes this step a lot easier. If you don’t have Mint, I would highly recommend that you set up an account.
Otherwise, review all of your bank and credit card statements. Take the past 4 months, average them, and use that amount as your baseline for the variable expense.
Step 4: Write down all your annual or semi-annual expenses
Don’t forget about your annual or semi-annual expenses! Because these expenses only happen once or twice a year, we sometimes forget about them until it’s time to pay the bill. This includes car insurance, pest control, wholesale club memberships, etc.
For expenses like this, divide the annual amount or estimated amount up by 12 (if an annual expense) so you can add that to your monthly budget. Place that amount in a savings account every month so when the bill comes up, you can easily pay it.
If you already have the money, that’s great! Just place that money into a savings account so you won’t be tempted to use it for something other than that expense.
Step 5: Make some cuts
If you’ve never tracked your expenses against your income before, you may be a little surprised to see what you find. Hopefully, it’s better than what you had imagined but there’s a high likelihood that it’s worse. But I promise it’ll be okay! Just look at it like you have a lot more room for improvement so take advantage of it! Know that things will start looking better once you start making some much-needed changes.
Start by reviewing every. single. expense. As you review each expense, ask yourself these questions:
- Do I really need it?
- Do I really use it?
- Can I get it cheaper?
- Are there alternatives?
If you don’t need it or don’t really use it then get rid of. For the things that you do need and use, take a little time to do some research to see if you can get it cheaper by asking for a discount or by finding a better and cheaper alternative.
The first thing that my husband and I changed was our dining out expense. We used to eat out 3 times a week and it showed in our bank account. I dusted off my cookbooks, got recipes off of Pinterest, and started meal planning. Now we eat in 6 days a week instead of 4. We didn’t cut eating out completely because that wasn’t realistic for us but we did make a change that made a big difference to our budget.
The second change we made was the way I shopped for groceries. We were spending way more than a family of two should be spending. And after some trial and error, I was able to cut it by $165 each month! Read more about how you can start saving more on groceries here.
Another major change we made was our cable. We went from a premium package to the basic package. And after a few months of that, we cut cable altogether.
Those three changes alone helped us save $255 each month!
Step 6: Compare your expenses (after all the cuts) to your income
After reviewing all the cuts, are you in a deficit? If so, review your budget again. Make even more cuts. Yes, it will be super hard but what doesn’t kill you makes you stronger right?
At this point, you will need to cut all entertainment expenses (not forever), cable, shop at discount grocery stores, pretty much everything possible until you break even.
Still in the deficit after all those cuts? You’ll need to pick up a side hustle to make extra money.
I know this is hard. But it will be so worth it when you are financially free! Think of all of the stress and worries you’ll lose and all of the freedom you’ll gain from not worrying about your bills.
Step 7: Do you have money leftover? (if not, skip this step)
Do you have money leftover in your budget? Save it! How does your emergency fund look? Are you saving for your retirement? Make sure you’re saving the extra money each month instead of spending it all because those meals out or the new shoes aren’t going to pay for a new alternator for your car or your retirement when you’re 68.
With that said, if you saved more than expected, take a small portion of that and do something fun. Reward yourself for your hard work.
Step 8: Make adjustments
A budget is always going to be a work in progress. It’s not a set it and forget it type of deal. You will have to tweak it and adjust it if it doesn’t work for your situation. Review your budget every month and see what adjustments can be made.
Reviewing our budgeting every month has kept us aware if we are continuously going over or under budget certain spending categories. This keeps us honest and accountable with each other and ourselves.
Budgeting doesn’t mean that your life as you know it is over. It means you’re telling your money where to go and what to do. You’ll have some hard decisions to make and may have to put some things on hold, but know that it will be well worth it when you are financially in control of your life.
What changes have you made to your budget that has helped you get closer to your goals?