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How to Set a Budget and Stick to it

How to Set a Budget and Stick to it

July 14, 2020

A budget is a tool you need to help you stretch your paycheck as far as it’ll go. And all it takes is just a little bit of discipline, planning, and most importantly, prioritization.  

While creating a budget may seem overwhelming at first – the time you spend putting it together will certainly be worth it when the process of paying your monthly bills becomes a little less stressful. So, where do you start? Well, setting a goal is always a good place to begin. It gives you something to shoot for. And then, of course, making a plan that’s going to set you in motion.

So, here’s how to do that in six easy steps.

  1. Know your income. Seems simple enough, right? But knowing how much you can spend each month starts with knowing how much you take home. That means you can’t build your budget based on your salary. It should be based on your net income. So, get out some pay stubs and see what you’re clearing after taxes, insurance, 401K contributions, and other stuff like that.
  2. Determine your basic expenses. Figure out what your fixed expenses are every month. These are the things that don’t fluctuate or change dramatically throughout the year, like rent or mortgage payments, good old car payments, insurance, and student loans. This is also a good time to make sure you have some kind of safety net to help pay for these expenses in case of an emergency, like if you need a new water heater or your car needs new transmission.
  3. Determine expenses that vary each month. These are the things that change, based on usage, like your phone and other utilities, as well as your grocery bill – that could change. You could also add up all those flexible expenses, like clothes, restaurant meals, and entertainment costs. These are the costs that you have control over.
  4. Determine what’s really important. When it comes to creating a budget that works, you must take a really hard look at what you feel is truly necessary. As much as you like to think you can’t live without the latest gadget, this type of expense should go into the “like-to-have” category. So, if you want to find the fluff in your budget, start digging into your variable expenses and rank what’s most important to you.
  5. Follow your spending and review monthly. You want to give your budget a fighting chance , right? So, keep an eye on your wallet, and especially those credit cards to make sure you’re spending within limits throughout the month. It’s easy to forget and even easier for the small things to start adding up, so keep on it.
  6. Keep track. Find a way that works for you to keep track of your expenses. That can mean the old pen and paper, a spreadsheet, or one of those new fancy, fun budgeting apps, like the one we provide in our Client Portal here at Legacy Financial Group. Then, you just balance your budget. Keep your income information current and track your actual expenses monthly. After a few months, you’ll start to see patterns then you can figure out where you can streamline and make adjustments.

All in all, making a budget is a process that will take some time and effort, but put these steps into place and what you’ll get in return is well worth it. Before long, you can have more money for the things you want, in addition to the things you need.

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