How To Create (And Stick To) A Budget

No matter what your financial goals are, you need a plan to get there. That's all a budget is - it's a financial roadmap to get you from point A to point B. Whether point B is getting out of debt, paying for a new "toy", or saving for retirement, the best way to get there is a budget.

For some, creating a budget can be overwhelming and confusing. I'm here to tell you that creating a budget is easy. But sticking to it? That's a different story. Budgeting is only 20% head knowledge. The other 80% is behavioral.

Here are some things to keep in mind when creating (and committing to) a budget!

1. Tell EVERY dollar where to go

The first step in creating your budget is determining your income, or the total "money in" you'll have for the month. If you work on a salary basis, this should be pretty easy for you to determine. If you work hourly or on commission or direct sales, it might be a little more difficult. When in doubt, I always estimate on the low end.

Next, you write down where every single dollar of that income is going. Rent/Mortgage payment. Groceries. Gas. Savings. Student Loans. Insurance. Every. Little. Thing.

The goal is to get your Income to zero. Now that doesn't necessarily mean that you're actually SPENDING all your income. Remember, some of your income may be going to your savings. But, before the month begins, you should have a written plan of where every single dollar should be going. So income - spending = zero. This is known as zero-based budgeting.

2. Budget the the necessities first

Before you decide how much money you're going to spend on going out with your friends, you need to decide what you're going to spend on the necessities - your shelter, food, transportation, and clothing. Basically, the things you need to survive. And when I say clothing, I'm not talking about those super-cute shoes you NEED to have. I'm talking about the winter coat you need to buy your kid who grew 4 sizes since last year, and Minnesota winters are COLD! Shelter not only includes your rent/mortgage payment, but also all the utilities and taxes that come with it. Once you know how much you need to spend on the necessities, you'll know how much you have left over to spend in other areas.

3. Budget in some fun!

One reason many people don't like to budget is because they find it restricting and "no fun." If you're one of those people, it's your own fault! The entire purpose of a budget is you telling your money where to go. If you want to go on a weekend getaway with your friends or spouse, then budget it in! It's your money, you can spend it however you want! Just to be clear - if you're still paying off your debts, any extra money should be going to that first. But you won't be in debt forever! Focus on getting debt free first, and then you can celebrate with some fun!

4. Track your spending

Creating a budget is great, but you need to keep track of your progress throughout the month. How else will you know how much you have left to spend this month? I love using a phone app to track my spending. I personally love to use the EveryDollar app - it syncs with my bank account and automatically downloads my transactions so I can quickly and easily classify them into my different budget categories. But, there are other apps out there too! If you're more of a pen and paper fan - keep a small notebook in your purse or car and write down the details every time you spend money. If you use pen and paper, don't forget to include those payments that are automatically deducted from your bank account each month!

Tracking your spending is ESPECIALLY important for those categories that can vary month to month. For example, groceries, household supplies (toilet paper, toothpaste, etc...), gas - these aren't set amounts like your rent and insurance payments. I've found that using a cash envelope system helps me stay on track for some of these variable expenses. Using cash helps reign in some of that "accidental" spending. Those "quick stops" at the gas station for a candy bar and soda - those add up quick! It hurts to hand over cash, and studies show that those who pay cash spend less than those who quickly (and painlessly) swipe that plastic card.

5. Evaluate and tweak your budget each month

A budget is not a "one size fits all" fix. Sure, most of the budget categories won't change from month to month, but some things will. Don't forget about those things you pay for less frequently - annual subscriptions, semi-annual car insurance payments, car tabs, and Christmas gifts. Before the start of the month, take a look at any of these payments you have coming up, and be sure to include them in your budget. I keep a running list of all these types of expenses, so I don't ever forget the day they're due and the amount.

There are a couple ways you can budget for these. If you earn enough each month to cover all the necessities PLUS these additional expenses, you can just reduce the amount you put in savings that month, and you're good to go.

Sometimes a little extra planning is needed to pay for these things. Instead of trying to come up with $200 in December to pay for everyone's Christmas gifts, you can put aside about $17 a month and get the same result. In fact, you'll even get a little extra! These are called sinking funds. But, be sure to keep these funds SEPARATE from your actual savings. Otherwise, it's easy to forget how much is savings and how much is for your sinking funds.

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By following these 5 tips, you'll find that budgeting really doesn't have to be as intimidating or confusing as you may have found in the past! So give it a try! With November coming to an end soon (this year is going by SO fast!), now is a great time to start creating your December budget. Start by writing down the expenses that are certainties, and estimate the dollar amount on things you aren't sure of. If you find out your estimates are off, then adjust them next month! You won't get it all perfect your first month, but you won't EVER get it perfect if you don't start.

If you need help or have any questions, feel free to reach out! I'd love to help you get started!