6 Steps to Creating a Budget You Can Stick To

6 Steps to Creating a Budget You Can Stick To

Welcome to the first article in our new budgeting series.  Over the next several weeks we will be posting articles that will help you budget and save your money.  Couponing is a great start (you do use coupons, right?) but there are many others things you can do to help with your finances.

6 Steps to Creating a Budget You Can Stick To

Setting a budget is important for your financial health. Like with many plans though, setting a budget can be easier than actually sticking to it. Here are some tips on how you can create a viable budget for yourself.

Step #1: Calculate how much money you bring home

The first step to determining how you spend your money is to determine how much money you actually have to spend. When doing this, you need to look at how much money you actually bring home – not how much money you earn. Consider all of your sources of income and write this figure down.

Step #2: Calculate your monthly expenses

The next logical step is to calculate exactly how much money you spend each month and what you are spending it on. Sit down and write down every single expense that you have on a monthly basis. If you have a bank account that enables you to track your transactions, now would be a good time to get that out in front of you so this figure is as accurate as possible. If possible, analyze at least the past 3 months. You want to include all expenditures including, but not limited to:

  • Housing- rent, mortgage, homeowner fees, homeowner insurance, lawn care services, housekeeping services, etc.
  • Utilities- electricity, propane & gas, water & sewage
  • Telephone/cell phone
  • Cable
  • Internet
  • Business expenses if you run a business
  • Transportation- car note, car insurance, maintenance, gas, etc.
  • Childcare- daycare/babysitter, school fees, extracurricular activities, etc.
  • Pet care- food, medication, grooming, etc.
  • Food- groceries, eating out, ordering delivery, etc.
  • Healthcare- medical bills, medical insurance, dental insurance, vision insurance, etc.
  • Miscellaneous- entertainment, clothing, gifts, etc.

Step #3: Trim the fat

After you have an accurate account of what you buy or pay for each month, it is time for you to cut out any unnecessary monthly expenditures. Look at your list of expenses and for each one, ask yourself “Is this necessary? Can I live without it?” If your response is that you can live without it, you might want to consider removing it from your budget. You don’t have to completely cut it from your life, but it should definitely be viewed as something that you buy only when you have the money to spare, instead of it being purchased just as easily or regularly as the necessities.

Step #4: Determine your Fixed Expenses and Discretionary Expenses

Once you have cut out all of the extra stuff, you need to figure out which expense are fixed (in other words, they cost the same every single month, like your rent or mortgage), and which ones are discretionary (meaning, the amount may change from month to month based on factors such as usage, as with most utilities). Knowing these two figures will help you to figure out an average for how much you spend each month. Keep in mind that some of these figures may also fluctuate based on the time of year. For example, your electric bill may be higher in periods of more extreme weather if you use your air conditioner and heat to offset the temperature outside. Once you have a solid estimate of your monthly expenditures, you can work out how much you can allot to your various expenses.

Step #5: Write down your plan

Write down your list of planned expenses and how much you can allot to each one during the month. You might want to add in a bit of leeway money in case you end up needing to buy something you hadn’t planned on. This is where having a savings account comes in handy.

Step #6: Track your actual expenditures

It is not enough to plan how you will spend your money. A big part of budgeting is actually tracking how you spend it. Set aside time each week (or each day if you need to) to fill in what you bought and how much you spent. Then, at the end of the month, you can see how well you stuck to your budget and if you need to make some adjustments.

6 Steps to Creating a Budget You Can Stick To

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