Just like with healthy eating and exercise habits, it’s really hard to stick to a budget. That’s usually because we are trying to stick to a budget that doesn’t make sense for us. So let’s figure out how you can create a budget that will help you be financially successful.
Identify your financial goals
It’ll be a lot easier to stick to a budget if you know what you’re doing it for… sticking to a budget for budget’s sake is a recipe for failure. That’s why you need to identify your goals so that you can see what you’re working towards. You’ll feel a lot more motivated that way.
What is most important to you moving forward? Do you want to make changes in your career, love life, friendships or financial situation? Do you want to travel? Pick out the goals that mean the most to you, and then you can figure out how to achieve them.
Make sure you write those goals down – you’re much more likely to reach them that way. If these goals are big, break them down into digestible steps. This will make it much less intimidating, and also feel more attainable. For example, if you want to save $5,000 in a travel fund by 2018, figure out how much you’d have to save each week to make that happen.
Now that you know your goals, you can build your budget to help you reach them.
(Need some ideas for goals to work towards? Check out these simple financial goals for 2017.)
Figure out how much is coming in
Some of us don’t even know how much our monthly income is. We get our direct deposit and go on with our day. But it’s really important to know exactly how much is coming in each month. You can’t plan ahead if you don’t know what you’re working with.
Look at your past four paychecks. Are they consistent? What’s being taken out of them besides taxes? Add up your monthly paychecks and any other income you typically receive. That’s the maximum amount of money you should be spending on everything each month.
Figure out how much is going out
Look at all of your expenses. These are broken out into fixed costs, flex spending, debt payments, and other priorities. Add them all up to figure out how much you spend every month.
Here are some definitions to help you:
Fixed costs: Any costs that usually stay the same each month. This can be rent, insurance, utilities, or subscriptions. These are the types of expenses that you usually cannot change (even if you want to). Make sure you’re also including non-monthly expenses in this amount. (Read more about preparing for those.)
Flex spending: This is any spending that can fluctuate from month to month. It can include groceries, gas, shopping, dining out, etc. You usually have some control over these amounts.
Debt payments: Whatever you’re paying towards any debt each month. This can include credit card debt, student loans, car payment, etc.
Other priorities: This amount is anything you’re putting towards other goals, like savings or paying extra towards your debt.
To make this easier, link up your accounts to programs like Learnvest, Personal Capital or Mint. They will automatically categorize your spending into different buckets, so you can see where you are using most of your money.
Once you can see how much is going out during a typical month, you can see how that compares to what is coming in. Are you spending more than you earn? Do you have money leftover that you can allocate to your financial goals?
Decide where you can cut back
Compare your spending habits to the goals you just identified. Do they align? If you realize that you’re spending a lot of money on things you don’t value, you can make some changes. Here are some good questions to get you started:
- Are there any subscriptions that you are paying for but not using? (ie: gym membership, magazine subscription, ZipCar, etc.)
- Are you taking a lot of cabs or ubers when you could walk, carpool, or take public transportation?
- Do you go out for lunch every day when you could be bringing your lunch to work?
- Is your money going towards the things you enjoy the most?
- Do you regret any of your spendings over the past few months?
(Read more about aligning your spending with your values.)
Adjust your spending as necessary
If you’ve realized that you’re spending more than you’re earning, or that your money isn’t going where you want it to, you can make changes. You have the power!
When you look at how much you’re earning each month, minus your fixed costs and debt payments, how much do you have left? That number is how much you should spend on flex costs and other priorities. Don’t go over that number or you risk going into debt. Allocate the number based on your needs and wants. Obviously you can’t cut out things like food, but you can spend less on dining out, while buying groceries more often. You can make coffee at home and bring your lunch to work. You can cut back on unnecessary shopping trips. (Share in the comments how you’re planning to make changes!)
Throughout this process, and as you continue to use your budget, keep your eye on the prize. Track how much closer you are to your goal each month. Print out a picture of your dream house and keep it on your desk. Remind yourself everyday that you’re doing this for an important reason! You’re doing it for YOU! That will make it easier to stick to.
Automate what you can
The easiest way to save is to set it and forget it. Set up direct deposit from your paycheck, or have your bank make scheduled transfers. This way, you don’t have to think about it and you won’t miss the money. You’re way more likely to save when you do this.
If you are working to pay down your debt, set up auto pay or set a reminder for yourself each month. You want to make sure to pay your bills on time, and this will take some of the work away from you. Just make sure you have enough in your bank account each month to pay these bills!
Note: If you’re already living on a bare bones budget, and still have nothing leftover, you might have to bring in more income. Can you ask for a raise at work soon? Perhaps you can take on a side gig, like babysitting, dog walking, or bartending. Another option is to monetize your skills. If you’re an awesome writer or copy editor, put yourself out there for hire!
Do you want a sample budget spreadsheet to get you started? Email me at firstname.lastname@example.org!