Posted on January 20, 2016 in Budgeting
How to Make a Budget You’ll Actually Stick To
Maybe you’ve got a handle on how much you spend each month, and you’ve even created savings goals and limits for each category of spending. But let’s face it—sticking to a monthly budget is easier said than done. When you happen to be driving past your favorite restaurant at dinnertime, or that department store sale is just too good to pass up, what strategies can you use to stop spending and start saving?
Here’s how to make a budget you’ll actually stick to when push comes to shove.
Create a personalized, realistic plan
Every day, people vow to save more and spend less—but if their budget plan is too stringent (or too relaxed), they’re setting themselves up for failure. For example, if you’ve vowed to eat only organic fruits and vegetables, it’s probably impractical to budget $150 per month on groceries (unless you’re an avid gardener and can grow your own produce). The key to successful budgeting is creating a practical budget plan that fits your personal income, goals, and lifestyle.
Make your goals measurable
Start by determining your essential expenses—things like groceries, rent or mortgage payments, health insurance (if your employer doesn’t provide it), and car insurance—and weighing them against your monthly income. Then make a list of measurable goals.
For example, if one of your big goals is to pay off loans or a credit card balance, prioritize paying down the highest interest debt first. Then decide how much you can allocate toward each debt category per month and come up with a realistic timeline to knock out those loans (you can use a debt payoff calculator to do the math for you). And schedule a big party or nice dinner for the day you’re done paying off your debt.
You’ll also want to make a list of savings goals. Start with the standards: a 3-6 month emergency fund and a retirement account (such as your company’s 401(k) or an IRA). You may not be able to save a ton early on, but small amounts can make a big difference over time. Figure out what you can spare and make it a regular thing.
And don’t forget to save for the fun stuff, too. Want to backpack across Europe next year? Better to start saving now than decide last minute to put the trip on a credit card (and pay the accompanying interest). When you save money for the things that matter to you – like travel, for example – you appreciate the purchase that much more.
Identify extras—and evaluate
G.E. Miller of 20SomethingFinance.com identifies this category as “things most people want, but don’t need.” It’s important to get a firm grasp on what you really need vs. what you want but could do without. Eating out, taxi rides, going to the movies, cable TV, and home Internet service all fall into the non-essentials category. This list is a little different for each person, so think carefully as you compile it—and then decide where you want to cut back in order to make greater progress toward your goals.
Pay with cash
If you have trouble keeping your spending in check and need a visual reminder of how much you have left in each category, using the envelope system can be a good option. Parting with cash is often psychologically harder than swiping a card, and it keeps you from running up your credit card balance.
Seek out camaraderie
It might feel like you’re the only one trying to live on a budget, but the truth is, you’re not alone. Talk to friends and family and find a buddy or two who’s willing to hold you accountable. “You need to know you’re not the only person setting sane financial limits for yourself, and it helps to be able to talk things over,” writes Annie Mueller over at Investopedia. “You can also have accountability with your frugal buddies and check each other on sticking to those budgets.”
As you establish a realistic budget and start saving, it’s important to celebrate each step along the way. If you came in under budget on your grocery bill this month, go to the movies or out to dinner with that extra cash. Larger milestones like paying off your car, student loans, or mortgage are worth a more sizeable reward—and planning the celebration ahead of time can serve as a motivator while you’re still working toward the goal.
Keep a healthy perspective
Remember that budgeting is a tool to help you, not a rope to tie you down and keep you from having any fun. The ultimate goal isn’t to learn to live on bread and water—it’s to put your money to work for you, lowering your stress level and improving your quality of life. In fact, the more you stick to your budget, the more you just might love what it does for you.