HOW TO CREATE A BUDGET (THAT ACTUALLY WORKS)

If you have found your way to this blog post, I assume you may be struggling to create and stick to a budget, but don’t worry - you’re not alone. In 2022, 73% of Americans said they don’t budget at all, and of those that do, 83% say they exceed it each month.

Budgets are like the diets of the financial world. We create them with the best of intentions, but we make them so restrictive that they are nearly impossible to stick to. As soon as we are told we can’t do something… it makes us want to do it even more.

Although it is very challenging, sticking to a budget can be beneficial to our lives both in the short and long term. Creating a REALISTIC budget that caters to your UNIQUE needs, wants, and goals is the only way to make them work. Now, let’s get into it.

WHY DO MOST BUDGETS FAIL?

Budgets fail due to a combination of factors, including unrealistic expectations, a lack of regular monitoring and adjustment, and a failure to account for unexpected expenses. Unrealistic planning can set you up for disappointment when you can't meet your budgetary goals, leading to frustration and abandonment of the entire budgeting process.

Neglecting small daily expenses, failing to prioritize long-term financial goals, and giving in to impulsive spending can all undermine the effectiveness of a budget. To overcome these challenges, it's crucial to create a realistic, flexible, and goal-oriented budget that is regularly monitored and adjusted to align with changing financial circumstances and objectives.

Now, let’s create a budget that works for YOU.

FIRST, A REMINDER WHY YOU NEED A BUDGET

1. Financial Control and Discipline: A budget provides you with a structured framework to manage your finances. With a budget in place, you can clearly see where your money is going and make informed decisions about your spending. This increased awareness and discipline can prevent impulsive or unnecessary expenditures, ensuring that you live within your means.

2. Goal Achievement: A budget allows you to set and work towards specific financial goals. Whether you're saving for a vacation, paying off debt, or building an emergency fund, a budget helps you allocate funds toward these objectives. By tracking your progress within your budget, you're more likely to achieve your financial aspirations.

3. Financial Stability and Peace of Mind: Budgets help you anticipate and prepare for emergencies by setting aside funds for unexpected expenses. Knowing that your financial affairs are organized and under control can provide a sense of security and reduce worries about money.

In addition to these benefits, budgets also help you save money, avoid unnecessary debt, and plan for long-term financial objectives like retirement or homeownership. They are valuable tools for individuals and households of all income levels, providing a structured approach to managing your financial resources and achieving your financial goals.

5 STEPS TO CREATE YOUR BUDGET

Creating a realistic budget involves careful planning and consideration of your financial circumstances. Here are five steps to help you create a budget that is both effective and realistic:

1. Assess Your Financial Situation: Start by gathering all your financial information, including income, expenses, debts, and savings. You need a clear understanding of your current financial situation. Make a list of your income sources, such as your salary, rental income, or any side gigs. Gather recent bank and credit card statements to review your spending habits.

2. Categorize Your Expenses: Organize your expenses into categories, differentiating between fixed and variable costs. Fixed expenses are those that remain relatively stable each month, such as rent/mortgage, utilities, and loan payments. Variable expenses are costs that fluctuate, like groceries, entertainment, and dining out. Also, include savings goals and debt repayment in your budget.

3. Set Realistic Goals: Determine your financial goals. These could include saving for emergencies, paying off debt, saving for a vacation, or investing for the future. Ensure your goals are specific, measurable, achievable, relevant, and time-bound (SMART goals). Setting realistic goals will help you stay motivated and track your progress.

4. Create Your Budget: Use a budgeting tool, spreadsheet, or pen and paper to create your budget. Start by deducting your expenses from your income. Allocate a specific amount to each expense category based on your assessment of what is reasonable and achievable. Ensure that your total expenses do not exceed your total income. Prioritize essential expenses, but don't forget to allocate funds to savings and debt repayment.
   

   Check out my FREE budgeting templates here.
   

5. Track and Adjust: Once your budget is in place, track your actual spending against your budgeted amounts. This can be done daily, weekly, or monthly, depending on your preference. Use budgeting apps or spreadsheets to help with this. Regularly review your budget and make adjustments as necessary. If you consistently overspend in a particular category, consider reallocating funds from other areas.

TIPS FOR ACTUALLY STICKING TO YOUR BUDGET

1. Set Goals That Matter to YOU: Everyone has different life circumstances and aspirations, therefore financial goals are unique to each individual. Clearly define the financial goals that matter to you and prioritize them in your budget. Whether you're saving for a vacation, paying off debt, or building an emergency fund, having specific objectives will provide motivation and focus.

2. Be Realistic: Ensure your budget is based on accurate estimates of your income and expenses. Be honest about your spending habits, and don't set overly restrictive limits that you're unlikely to follow. A realistic budget is more likely to be sustainable over the long term.

3. Avoid Impulse Spending: Think before making impulse purchases. Consider whether an unplanned expense aligns with your financial goals and whether it's more important than your budgeted priorities.

4. Use Technology and Budgeting Tools: Take advantage of budgeting apps and software to help you track your income and expenses. Check out my FREE budgeting templates here.

5. Automate Savings and Bill Payments: Automate regular savings contributions and bill payments as much as possible. Setting up automatic transfers for savings and bills ensures that you don't forget to allocate money for essential expenses and savings goals.

6. Be Patient and Persistent: Sticking to a budget is a journey that may involve occasional setbacks. Be patient with yourself and stay committed to your financial goals. Over time, budgeting can become a habit that leads to better financial control and greater peace of mind.

A LITTLE MOTIVATION BEFORE I SEND YOU ON YOUR WAY

Budgeting is your key to financial empowerment. With a well-structured budget, you're not merely tracking dollars and cents; you're sculpting a brighter financial future for yourself. Imagine the freedom that comes with paying off debts, the excitement of seeing your savings grow, and the security of being prepared for any financial curveball life throws your way. So, take that first step, start budgeting, and watch as your financial dreams become a reality.

YOU CAN DO IT!!