How to Create an Effective Budget That’s Easy to Stick To
We’ve talked about the benefits of budgeting before, so now it’s time to break down the actual budget. How can you successfully create a budget that will work with your personal finances each month? There are a wealth of options for everyone looking to manage and track their dollars, from high-level salaried workers to people on fluctuating freelance budgets. We’re going to give you our tips to help you start saving and achieve financial stability.
- Track your spending
To create an effective budget, you’ll need to know roughly how much you spend each month. There are plenty of ways you can figure this out. Forbes lists several spending tracker apps as well as their pros and cons if you’re looking for a solution that fits in your pocket. If not, paper and pen always works! Carefully document every purchase, because even smaller transactions add up – we call this “Death by a thousand small purchases” – and you may see an opportunity to eliminate those kinds of impulsive buys.
- Set a goal and see where you can cut costs
It’s important to set goals when considering your finances because it gives you a milestone to work toward and help you see when you’ve made progress. Once you know where your money is being spent you can decide which costs can stay in your monthly budget and which you can cut. There are ways to banish debt while on a limited budget, so don’t assume your efforts are futile because you’re not seeing immediate changes.
- Know your income
You can’t accurately determine how much you can spend each month without knowing how much money you make. Know your income and determine how much of it can be spent on the items you’ve recorded. Do you see an opportunity to get rid of a recurring cost? Can you add more to your savings each month?
Also consider the way you receive your income. Direct depositing makes it easy to receive your money and to direct funds to savings accounts without ever touching your checking account, but holding on to a physical check at the end of the week may leave you with a greater appreciate for your hard-earned money.
- Determine if you can afford to put a portion of your paycheck away each month
If you’ve decided that you can cut costs, you’ll want to consider how much you can afford to transfer to savings each month. You can even set up automatic transfers, which can help you stick to your budget and give you the opportunity to grow your funds. Putting money away is valuable because it does add up over time. It can be especially beneficial to open an online savings account if you have a larger sum of funds because you’ll be offered higher interest rates than other banks.
- Make a plan for next month and implement it
Once you’ve figured out your budget you can make a strategy for the next month to see if it works well for you. The first month may be a bit of a learning curve if you’re new to budgeting and have been struggling to maintain your finances. You may also feel as if you’re cutting yourself off too much depending on how restrictive of a budget you’ve made. Use the next month or two after creating your budget to get a feel for a plan that works for .