How to Make a Budget – and Stick to It

 

Susannah Snider

 

For many consumers, the cornerstone of a healthy financial life is a strong budget.

 

“A budget is a very powerful tool,” says Jamie Ebersole, a certified financial planner in Wellesley Hills, Massachusetts. “It gives you the ability to think further ahead so you can make plans for goals coming up.”

 

There’s no one-size-fits-all strategy for building and maintaining a budget, experts say. Instead, savvy consumers may need to try a few strategies, tools or tactics to land on the one that works best for them. If you’ve tried unsuccessfully to budget before, changing up your budgeting strategy may be the key to doing better in the future.

 

Here’s what to know about creating a budget – and maintaining it over the long haul.

 

Understand what a budget is.

 

“A budget is an organizational tool to help you identify how it is that you want to spend your money,” says Douglas Boneparth, president of Bone Fide Wealth in New York City and co-author of The Millennial Money Fix.

 

This spending plan usually requires tracking two things: your after-tax income and the amount you’re shelling out each month. At the most basic level, you want your monthly expenses, including savings deposits and debt payments, to amount to less than your take-home pay. After you’ve accomplished that, you can tweak your spending to achieve goals, pay off debt faster or buy yourself treats.

 

Take inventory of your finances.

 

Setting up a budget initially takes some legwork, but once you get into the rhythm, experts say, you should be able to maintain your spending plan with less effort.

 

To get started, track your expenses for a few months, just to get a handle on them, Ebersole says. That doesn’t mean you have to write down every little expense in a notebook. For example, you can use a single credit card or debit card for a few months and use the statement as a log of all your spending.

 

If it’s the beginning of the year, reviewing last year’s annual bank statement may be a good place to get an initial breakdown of your spending. Digital tools such as Mint track spending, too, or you can even use an old-fashioned Excel spreadsheet to log and categorize your expenditures. Boneparth recommends this more old-school, manual strategy for newbie budget-makers. That way, you really have to take note of where your money is going, he says.

 

Know your financial goals.

 

Having a sense of the goals you want to achieve – and how much they’ll cost – can be powerfully motivating for budget-followers, experts say. “They are what motivate you to change behavior,” Boneparth says.

 

So, take a few moments to think about what you’d like to accomplish. Do you want to pay off your student loans? Take a vacation? Stop living paycheck to paycheck? Understanding what you want to achieve and how much money needs to be left over at the end of each month to make that possible is key to maintaining a spending plan, experts say.

 

Choose a budget system that works for you.

 

You can find dozens of sample budgets and spending breakdowns online. The kind of budget you choose can be dictated by many factors, including your long-term goals, your age, expenses and current living situation. The key is to find a system and breakdown that works for you.

 

One budget that’s very simple and effective comes from a place you might not expect: a book co-authored by Democratic Sen. Elizabeth Warren of Massachusetts called All Your Worth: The Ultimate Lifetime Money Plan, says Stephanie Genkin, certified financial planner and founder of My Financial Planner LLC in Brooklyn, New York. In it, Warren recommends a 50-20-30 budget breakdown that earmarks 50 percent of after-tax pay for needs, such as rent, groceries and minimum credit card payments, 20 percent for savings and extra debt repayments and 30 percent for wants, such as traveling and dining out.

 

The nice part, Genkin says, is that once you get the savings and needs categories squared away and automated, you only need to actively track the 30 percent “wants” category.

 

Boneparth finds it helpful to create a budget by breaking spending into “fixed” expenses such as mortgage, investments, and internet service, and “variable” expenses such as food, clothing and utilities. You can focus your daily or monthly budgeting energy on that variable category, he says.

 

If those strategies don’t work, search online for sample spending plans and find the one that works best for your lifestyle and financial situation.

 

Understand that there are two sides to a budget.

 

Oftentimes, budget-makers focus on the spending side of the budget equation. They home in on the expenses destroying their budget. They stop buying coffee every morning, swear off pricey avocado toast or stop shopping for months at a time. While those are great changes, newbie budget-makers shouldn’t forget that there’s another way to make your spending plan more effective.

 

The income side of your budge – the money coming in – is also negotiable. Consumers can earn more money when they pick up a side hustle, fight for a raise at work or even take on a new job to make their take-home pay even higher.

 

Don’t forget, too, that fixed expenses, such as your rent, cable bill or car payment can be reduced. For example, you can take on a roommate to slash housing payments. You can cut the cord to reduce your cable bill. You can sell your car and rely on public transportation to decrease your transportation expenses.

 

Explore budgeting apps, software and other tools.

 

There are tons of tools for budgeting, so explore and find what works best for your budgeting style.

 

For example, Mint’s digital app syncs up with your bank and credit accounts to track spending and help you meet goals. For a simple, interactive online budget spreadsheet, check out PearBudget. Want to go offline? The “envelope method” is a cash-based method that involves tracking your spending by dividing your cash into separate paper envelopes, each earmarked for a certain spending category. Goodbudget is essentially the digital version of the envelope method. And, of course, there’s always your trusty Excel spreadsheet, where you can log income and note spending.

 

Take note of why budgeting fails.

 

Like maintaining a diet or exercise plan, you’ll need to make an effort to stick to your budget month after month and year after year. First, you’ll need to figure out what keeps you motivated. Is it using a budgeting mobile app? Is it making – and achieving – small financial goals?

 

Next, you’ll need to find a sustainable level of work necessary to maintain your budget. Just like promising yourself that you’ll exercise every day and only eat spinach is an easy way to burn yourself out on a health plan, making unrealistic expectations about spending is a surefire way to fail at your budget.

 

“Counting every little expenditure is the road to drive yourself crazy,” Genkin says. “Don’t throw up your hands and say, ‘I can’t do this.’ Try a number of different ways to build a budget for yourself.”

 

So, look at ways to automate your necessary expenses – that way, you’re only tracking certain spending categories each month. And search for apps and online tools that you actually enjoy using. Make sure there’s room to occasionally treat yourself to a night out or a quick shopping trip. A budget that you dread following is doomed to fail.