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5 Simple Steps to Creating a Budget That Actually Works

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5 Simple Steps to Creating a Budget That Actually Works
As a general rule of thumb, we're taught to avoid spending more than we earn. Easier said than done, especially if you don't have a concrete plan in place. That's where a budget comes in. But creating a budget that you will actually stick to can prove to be challenging.

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Budgeting = creating a plan to spend your money

Budgeting is simply balancing your expenses with your income.

It's a plan for the coordination of resources and expenditures. When you budget your money, there’s a desir...

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How to create a budget

  1. Gather Some Financial Information: gather a detailed list of your income and expenses.
  2. Select a Budgeting Method: figure out how you’ll budge...

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The 70:20:10 budgeting method

The 70:20:10 budgeting method

This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.

70:20:10 may work for someone with a healthy ...

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The 50:30:20 budgeting method

The 50:30:20 budgeting method

Under this method, 50 percent goes to expenses, 30 percent goes to wants, and 20 percent goes to a combination of debt and savings.

A person with a healthy amount of disposable income ...

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Allocating expenses

The most common buckets are:

  • Expenses, or your needs: housing, food, transportation, clothing, insurance, childcare,  etc.
  • Debt - monthly debt obliga...

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Online Scheduling and Online Bill Payment

Scheduling your payments  (online or through your financial institution’s bill pay feature) decreases the likelihood of blowing your budget. 

Despite the fact that funds will...

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Benefits of automated savings

  • you don’t have to go through the trouble of making an additional transfer
  • it won’t be as tempting to spend money that’s sitting in a savings account that y...

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SIMILAR ARTICLES & IDEAS:

A Monthly Budget For Your Money

No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.

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The Envelope System

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

How to Create a Good Budget

The principles that make a good budget, something you can stick to:

  • Being Realistic: Being too strict is a recipe for failure.
  • Making Adjustments: A budget is not set in stone, but a fluid thing.
  • A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
  • Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
  • Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

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The zero-sum budget

Using this method forces you to “spend” every dollar that you make, by allocating all of your earnings into the different categories that your finances require.

It prevents waste and m...

Steps of the zero-sum budget

  1. Determine how much you make on any given month.
  2. List your bills: Once you determine how much money you'll make this month,  figure out how much money you need to spend next month.
  3. Compare and contrast:  Once you see your monthly income and your monthly bills on paper, a clear picture of how much money is left over emerges.
  4. Spend all of your money on paper: decide where that money will serve you best.
  5. Track your spending.
  6.  Make adjustments to get it right.

The 50/20/30 budgeting method

The 50/20/30 budgeting method

With the 50/20/30 budgeting method:

  • 50% of your monthly spending goes toward essentials - your home, your food, etc.
  • 20% of your monthly spending ...

Debt payments

Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.

Reducing your essentials

Play around with your monthly budget to see where you can reduce your monthly spending:

  • You could contact your internet company to get a discount.
  • You can clip coupons and use rebate apps to spend less on your monthly groceries.
  • You could set aside less for medical expenses if you have an emergency fund.