How to Create a Budget You Can Stick To

How to Create a Budget You Can Stick To

If you avoid budgeting, you’re not alone. Understanding the basics can help you create a budget to fit your lifestyle.

The word “budget” can evoke many different emotions, from a sense of security to full-fledged anxiety. If you get anxious when you look at your bank account, you’re not alone: more than 55% of Americans don’t use a budget to track their expenses.1 If you find yourself in that group, it can help to think of a budget not as a limitation but as a powerful tool: When you have a budget that works for you, you’re empowered to make informed decisions about your financial future, both in the short term and long term.

Budgeting doesn’t have to be complicated. In a few minutes you can set one up and learn how to stick to a budget — the first steps toward reaching your financial goals.

How Budgeting Can Help You

Over your lifetime, your financial goals and priorities will likely change. Whether you’re planning a vacation, a wedding, buying a home or renovating it, or planning for retirement, these goals can require a significant amount of money.

Creating and sticking to a budget can help make sure you’re staying on track to meet these goals and more. It might also help you stay out of debt. In fact, people who don’t track their spending tend to have more credit card debt than those who do.1

A budget also offers you the opportunity to identify unnecessary spending, helping you identify opportunities to put more money toward your goals. Whether it’s spending a lot on restaurants, subscription services, or entertainment, taking a hard look at your monthly spending can help you determine where there’s room to cut back if you need to. Making those decisions then frees you up to allocate those funds elsewhere.

What’s in a Budget?

Building a useful budget starts by keeping the objective in mind. In simple terms, your budget should show you how much money you earn, how much money you spend, and how much you have left over.

Once you have that information, you can break down and personalize your budget in a way that makes sense to you and fits your lifestyle. While there are several different approaches to budgeting, many experts recommend the 50/30/20 rule. Using the 50/30/20 approach to budgeting, 50% of your spending should go toward necessities, 30% toward wants, and 20% toward savings and debt repayment.

Examples of expenses that might fall into the “necessities” category could include:2

  • Housing
  • Groceries
  • Basic utilities
  • Transportation
  • Insurance
  • Minimum loan payments
  • Child care

Expenses that could go into the “wants” category could include:2

  • Eating out
  • Gifts
  • Travel
  • Entertainment

Depending on your financial situation, you might decide to temporarily trim your spending in this category to make sure you have enough money to cover your necessities, or to pay off debts faster.

Lastly, try to devote at least 20% of your after-tax income to debt repayment or savings. Starting or building your emergency fund should be one of your top priorities. From there, other high priorities in this category might include:

  • Contributing to your 401(k) or other retirement account
  • Paying down high-interest debt

How to Create and Stick to a Budget

To get started creating a budget, there are several routes you can take. Each method has advantages, so you’ll have to decide which one makes the most sense for your needs.

Here are some common ways you can track your spending:

  • Spreadsheet — Using a program like Microsoft Excel or Google Docs, you can customize a spreadsheet with your spending categories. These programs often have templates you can use so you don’t have to create it from scratch. However, spreadsheets require you to manually update your expenditures, so consider that if you’re worried you won’t keep it up to date. If this method appeals to you, we’ve included a spreadsheet below to help you get started.
  • Mobile apps — You can download a budget-tracking app on your cell phone and link it up to your bank account. This allows the app to automatically update your spending and saving as each transaction occurs. Comparing apps can help you find one that’s intuitive to you — just be certain you’re using a secure app from a trusted developer before you share any sensitive information.
  • Envelope method — If you prefer to use cash, consider the envelope method. This method involves labeling envelopes with different spending categories and putting money into them at the beginning of each month. Your monthly spending in that category is done once you’ve used up all the cash in the envelope. This method can give you a helpful visual cue as the month progresses to remind you about how much you’re spending.

Ready to take control of your finances? We’ve created a simple budget spreadsheet to help you get started.

Download spreadsheet

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Sources:

  1. “More Than Half of Us Don’t Keep a Budget or Know How Much We Spend,” June 15, 2021, The Penny Hoarder
  2. “Needs vs. Wants: How to Budget for Both,” Dec. 17, 2019, NerdWallet
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