create a budget

Use These 5 Steps to Make and Stick to a Budget

May 13, 2020 By Kathryn Vercillo Leave a Comment

Do you find it hard to make and stick to a budget? You aren’t alone. However, if you break it down into bite-sized chunks, then you’ll discover that it doesn’t have to be challenging at all.

I can almost hear your protests. I can hear them because I feel them stirring inside my own mind. The arguments are familiar to me because I have found it hard to make and stick to a budget in the past. For me, making the budget is usually easy; sticking to it is the hard part. However, as someone with inconsistent income, even making the budget can be hard.

Like I said, it doesn’t have to be. Here are five steps that can simplify for you how to make and stick to a budget. Step one, setting SMART Goals, is where you make the budget. The other four steps will help you stick to it.

1. Make Your Goals SMART

The first step in budgeting your money is figuring out why you want to do this in the first place. Then you can set goals that align with that vision.

Why Do You Want to Budget?

Some of the most common reasons that people want to budget include:

Desire to save money towards a specific goal, such as a family vacation
Desire to save money more generally for the future, to have a cushion
Awareness that spending has gotten out of control, wanting to rein that in
A budget can assist you in feeling like you have more control over your finances, so that they aren’t a mystery
You and your partner aren’t on the same page about finances but you want to be

Set SMART Goals

Once you know why you want to make and stick to a budget, then you can set very specific goals. Use the SMART method:

Be Specific

You can work on the “S” of smart goals at the same time that you’re working to determine exactly why you want to make and stick to a budget. Answer the “what and why” details. For example:

“I want to make a budget so that I can be free of debt. Why? Because I find debt to be incredibly stressful. If I am able to reduce my spending and use the extra money to reduce my debt, then I will feel freer.”

Alternatively: “I want to budget so that I can save $10000 for a family vacation in Europe in three years. I want our family to have this memorable experience together without the strain of going into debt for it.”

Get as specific as you can to help you really drill down to the meat of the goal.

Make Goals Measurable

Now it’s time to apply numbers to that goal. How much do you want to save? What is a realistic amount to budget for each necessary expense in your life?

For example, “My rent is $1800 so I need to budget that much for rent. I currently spend $1000 per month on food. However, I can budget $600 instead. I will set the other $400 into savings.”

Alternatively: “I want to go on vacation in three years, which is 36 months. If I want $10000 by then, I need to adjust my budget so that I can save $275 per month.”

Is Your Budget Achievable?

This is where you marry your goals and dreams with your realistic financial situation. In other words, this is where you make a budget. You list all of your expenses. Go through your financial history to get a realistic sense of what you spend each month, not just on set items (such as utilities and your phone bill) but also on miscellaneous (such as entertainment and clothing).

Analyze what you spend and what you earn. Look at your budget goals and see if you can make the numbers work out. For example, in the case of the three-years-away vacation described above, can you adjust your budget to save that $275 per month? Most likely, yet. If not, then you might need to tweak your goal. You could plan for a vacation that is four years away or you could reduce the amount you would like to have within three years.

Make sure that you make your budget work on paper. That’s the only way you have a chance of making it work inn real life.

Are Your Goals Relevant?

If your goal isn’t truly in line with your personal values then you’re not likely to make a budget and stick to it. Saving for a family vacation is relevant if you all enjoy traveling and you believe that such experiences are valuable individually and collectively. It’s worth it to you to stick to your budget because you believe in the larger goal it will allow you to accomplish.

If, on the other hand, you don’t actually enjoy traveling but you think you “should” because it’s “good for the kids” then you might self-sabotage your budget without intending too. Go back to the “why” that you looked at earlier and make sure that the answer aligns with all of your loftier ideals in life.

Place Time-Boundaries on Goals

As you set the specifics of your goal, you will want to limit it with time. The aforementioned three years of saving is a good example.

You can set time boundaries even if your budget goals seem looser. For example, “I want to create a budget that will allow me to save money so that I have a cushion for the future.” Make that more specific. How much do you want to have? By when do you want to have it? How can you break down that budget into annual and monthly goals?

For example, “I want to retire at 65 with $500,000 in my savings account. I am 35. That means I need to save $500,000 in 30 years, which is about $16,700 per year or $1388 per month.” This lets you know that you need to set a budget that will allow you to save $1388 within a one- month time frame.

2. Write Out Your Goal and Post It

Use the SMART method to create your budget. If you need additional help with the specifics of analyzing your finances in order to create this budget, here are some helpful links:

Once you have established your budget, write it out. Make it like a mission statement. Couch it in affirmative language. Then post it where you will see it regularly.

You might want to post it in several places. For example, a bullet list of the steps you plan to take makes a great phone screensaver. A paragraph about why you’re budgeting goes well on an index card that you use as a bookmark. Get creative. Where will you see the plan most frequently and how can it most motivate you to action?

3. Review Your Progress Regularly

The visible reminder from step two will help you stick to your budget. However, you should build in additional accountability. Therefore, you should review the goal regularly. Check your progress against the goal. Ask yourself if you need to make any adjustments. (You can always go back through the SMART steps if you do.)

I like to do a weekly quick check-in with my budget. Then I do a bigger review at the end of each month. This helps me stay on track throughout the month. It also helps me plan out the next month in the best way possible. I may discover that I can’t stick to my $600 food budget, so I will rework my budget accordingly in order to still meet my goals.

4. Reward Yourself for Success

Make small goals within the larger goal. Each time that you achieve one, reward yourself. You do not have to spend money to reward yourself. Keep a running list of things that give you great pleasure. When you meet a goal, choose at least one thing from your list and indulge.

This step is especially great for families or couples trying to stick to a budget together. Instead of nagging and annoying each other into compliance with the financial restrictions of a budget, you can use teamwork and encouragement to achieve your shared goals. Celebrating together will build momentum and keep you working towards the goals together.

5. Get Back on the Budget Horse When You Fall Off

Are you the type of person who plans to diet, then the second that you “cheat” you just go into a total binge? Many people do this when it comes to budgeting. You work hard to set the budget goals. You restrict your spending to see the budget. Then something happens and you slip. You over-spend. It feels like you’ll never get back on track, so you stop sticking to the budget altogether. This doesn’t make sense.

With a diet, let’s say that you ate a piece of cake which went over your caloric budget. Does it make sense to then just add a whole bunch more calories on? Will it feel good to your body to quit the diet altogether and eat all of the foods that are worst for you? No. You ate the cake. Enjoy it. Then move on. Get back to the diet. Eat the way you intended starting with the very next meal. Likewise, overspending once doesn’t mean you should keep spending. Go back to the budget. Start with it right away, as soon as you realize that you slipped up. Don’t berate yourself, shame yourself, guilt yourself, or avoid the truth. It’s all okay. Get back up on that budget horse and ride it to your goal.

What is the biggest challenge that you have had when it comes to learning how to make and stick to a budget?

Why It’s Important to Know How to Manage Your Money

April 4, 2012 By Dana O. Crandell 2 Comments

In today’s electronically-oriented society, a surprising number of people never learn to create a budget, balance a checkbook or handle other everyday tasks to keep track of finances. Many of us are simply too busy with our fast-paced lives and believe we can’t afford to take the time. The fact is, though, it’s more important now than ever to know how to manage your money. The high-speed, digital society we live in brings new pitfalls to avoid and the old ones are still there, too. Let’s look at a few good reasons to know where your money is going.

You May Spot Theft Before It’s Too Late

It’s far too easy to become a victim in today’s world. Watch the evening news on any given day and you’ll probably hear at least one story about someone being robbed of their hard-earned money and/or identity. There are new risks around every corner and modern thieves use subtle, intelligent methods that are hard to spot. The best way to know something is wrong is to always know how much money you should have. Spotting discrepancies early means you have a better chance of finding out what happened and taking steps to correct the situation.

There’s Less Chance You’ll Pay For Someone Else’s Mistake

Banks make mistakes. So do creditors, stockbrokers, and cashiers. If you’re always aware of what should be happening with your money, you’ll see the red flags when something goes wrong. Were you charged an extra fee on your checking account this month? Is this month’s water bill significantly higher than normal? There are hundreds of ways you can lose money because of human or machine error. Unless you’re managing your finances, you may never know when it happens to you.

You’ll See Problems Before They Become More Serious

If you’re always aware of where your money is going, you’ll know when too much of it is going to a particular area. If you’re suddenly putting too much gas in the car, maybe it’s time to have it tuned up. Are the heating bills soaring while the temperatures are about the same? Maybe it’s time to check weatherstripping and change the furnace filter. Keeping abreast of your spending will give you a chance to nip potential problems in the bud.

You’ll See What’s Working For You

Managing your money also gives you the opportunity to identify your good investments. You may find that using one credit card pays better dividends than another, or that your recent changes to your checking account are saving you a few dollars a month. Knowing you’re improving your financial status is a good feeling. The best way to know is to see it for yourself.

You’ll Know Where You Have Room For Adjustment

If you’re budgeting and tracking your money correctly, you’ll know what cahnges can be made when a need arises. If there’s an emergency or any sudden change in your cash flow, you’ll have a better idea of what you can do to maintain stability. A little spending cutback here or there could help you avoid serious damage to your finances and reputation with creditors.

You’ll Improve Your Overall Security

By handling your money management tasks yourself, you limit the number of people that have access to your funds and information. That in turn reduces the risk that information or funds will find their way into the wrong hands.

Your Financial Status Follows You Everywhere

One of the disadvantages to living in the Information Age is the fact that your credit score and financial history are far from private. Those records can affect your buying power, your living accommodations, and even your job. If they’re that important to the people you deal with, it stands to reason that they should be doubly important to you.

It’s Easier Now Than Ever To Manage Your Money

On the positive side of living in today’s world, you have easy, convenient access to all the tools you need to manage your funds. Banking, buying and selling, stock trading and almost anything associated with financing can be handled online, from the convenience of your home or office.

Your Goals Will Be Easier To Realize

The simple, everyday tasks you perform to keep your finances under control will server as a constant reminder of why you’re doing what you’re doing. You’ll be “keeping your eyes on the prize”, which we all know is the best way to win.

You Aren’t Going To Live Forever

This has always been one of the best reasons to keep your finances in order and it’s even more important today. Whether you’re raising a family of your own or still single, when you die, someone you leave behind will have to be responsible for the expenses associated with your death as well as settlement of your estate. It’s simply not fair to your loved ones to leave nothing behind but debts and it happens far too often – life insurance benefits only go so far.

No matter how small or large your bank account, managing your own money makes sense. It’s your future. Who better to build it than yourself?

(Photo courtesy of meddygarnet)

Couples and Money: Consultation vs Allowance

March 23, 2009 By Jennifer Derrick 10 Comments

One piece of financial advice that I often see offered is this: If you are part of a couple, give each other a measure of freedom with the money you earn but consult each other on any purchases over $100. In some variations the consultation amount is $50 or even $20. Whatever the amount, the idea is to give each partner some freedom and an ability to spend without answering to the other on every little purchase. It’s reasonable advice in that it keeps one partner or the other from feeling like a child and like he/she is going begging every time they want to buy something, but as a way to manage a budget it’s not very sound.

Why? Because it’s as easy to sink a budget with little purchases as with big purchases. I saw this played out with a couple that I am friendly with. They created a budget so they could work on their debt. They agreed that they would each be able to purchase any item under $30 without consulting the other. Anything over $30, other than gas, groceries, repairs, or bills had to be approved by the other spouse.

“It was a reasonable plan, we thought,” the wife told me. “But we still ended up deeper in debt.”

“What happened?” I asked.

“We both bought too much stuff that was under the limit. We kept thinking that it was okay, since it was all under $30. We never counted on the fact that so much stuff bought under $30 could sink the budget.”

It sounds like this should have been obvious to this couple, but it wasn’t. It turns out that what was happening, in addition to simply buying too much, was that both of them were deliberately breaking up purchases to come in under the limit. For example, in the pre-budget days the husband thought nothing of dropping $150 on an order of DVD’s, books and CD’s from Amazon. After they implemented the budget, he realized he couldn’t do that anymore but rather than curtailing the spending, he started breaking the orders into smaller pieces that came in under the $30 limit. She, in turn, was adding unnecessary items to the grocery cart (shopping at Super WalMarts and Targets make this a real problem) in order to avoid notice. Since “groceries” could be over $30 without approval, she rationalized throwing an extra DVD or purse into the cart during a grocery trip as “grocery spending.”

“Our credit card statements looked ridiculous,” she told me. “There were all these charges, for $28.95, $29.00, or even $29.99. Then there were the $300