How to Create a Budget and Stick to It

 

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Creating a budget and sticking to it is one of the most important financial habits you can develop. A budget helps you understand where your money is going and can help you make informed decisions about spending and saving. However, creating a budget is only the first step – sticking to it can be a challenge. In this article, we’ll explore some practical tips and strategies for creating a budget and sticking to it.

P.S. I have preached on budgeting almost on a daily basis to the people who have consulted me or even on my articles. But, well, let’s talk about it in detail because why not.

Why Budgeting

Before we dive into the specifics of how to create a budget and stick to it, let's first discuss why creating a budget is important.

A budget is a plan that outlines your income and expenses over a period of time, typically a month. By creating a budget, you can see exactly where your money is going and where you may be able to cut back on unnecessary expenses. This can help you to:

• Reduce your debt: If you have credit card debt or other high-interest loans, creating a budget can help you prioritize paying them off by allocating more money towards debt repayment.
• Build an emergency fund: By cutting back on unnecessary expenses, you can free up extra money to put towards building an emergency fund. This can help you weather unexpected expenses such as retrenchment or car repairs without going into debt.
• Save for long-term goals: Whether you're saving for a down payment on a house, a child's education, or retirement, a budget can help you set aside money each month towards your long-term goals.

This last point though, is the point where it is the utmost important to your life but a lot of people fail to see it simply because “they are still so far away” or “I don’t know whether it is really important” because the person can’t see it. I would probably create another article for this just as a form of scolding, but let’s see. ;)

You can also read How to Make Use of Your Bonus. Level up yourself further by reading that!

How To Create a Budget

Now that we’ve covered why creating a budget is important, let’s dive into the 6 steps for creating a budget.

Step 1: Determine your income

The first step in creating a budget is to determine your income. This includes any money you receive from your job, side hustles, investments, and other sources.

If you have a steady paycheck, you can use your net income (the amount you receive after taxes and other deductions) as your starting point. If your income is irregular or fluctuates from month to month, you may want to use an average of your income over the past few months as a baseline.

Step 2: Identify your expenses

Next, you'll want to identify your expenses. This includes everything from your rent/mortgage payment to your daily coffee habit. To make sure you don't miss any expenses, it's a good idea to categorize your expenses into broad categories such as housing, transportation, food, entertainment, and so on. Here are some common expenses you may want to include in your budget:

• Rent/mortgage payment

• Utilities (electricity, gas, water, etc.)

• Car payment/insurance/gas/maintenance

• Food/groceries

• Phone bill

• Internet/cable

• Entertainment (movies, dining out, hobbies, etc.)

• Clothing

• Student loan/credit card debt payments

• Savings (emergency fund, retirement, etc.)

Well, if you need to add your own unique categories, feel free to do so however it suits you. I personally use Excel sheets to track mine, so I can customize my categories however I want.

Step 3: Assign amounts to each expense category

Once you've identified your expenses, it's time to assign an amount to each category. To do this, you'll need to look at your past spending habits and figure out how much you typically spend in each category. You can use your bank statements or credit card statements to help you with this. Be sure to include both fixed expenses (such as your rent or car payment) and variable expenses (such as groceries or entertainment).

These can help to show you which category you spend the most on and whether you can/should/must work on it.

Step 4: Subtract your expenses from your income

After you've assigned an amount to each category, it's time to subtract your expenses from your income. Ideally, you want to have some money left over after you've paid all of your bills and expenses. If you find that you're spending more than you're making, you'll need to either cut back on expenses or find ways to increase your income.

If you feel like you are lost or questioning yourself why you need to do this, take a look at this next step.

Step 5: Set Your Financial Goals

Setting financial goals is equally important in budgeting. I have seen and met people who don’t have any goals, that they just drift with the flow of life, and have their savings from their salary be reduced to almost nothing no matter how much they are earning.

That is actually very dangerous as you can’t see the impact now. Only your future self will start scolding your past self and be suffering.

Your financial goals are the things that you want to achieve with your money, such as paying off debt, saving for a down payment on a house, or building an emergency fund.

Setting your financial goals will help you prioritize your spending and make sure that your money is going towards the things that are most important to you. Be specific about your goals, and make sure that they are realistic and achievable. If they are not realistic or achievable, you are going to give up as fast as you are drinking your water.

Step 6: Review and adjust your budget

This step is to review and adjust your budget regularly. Your budget is not set in stone. It is important to review your budget regularly, such as monthly or quarterly, to ensure that it is still relevant to your financial situation. You can adjust your budget if your income or expenses change, or if you need to reprioritize your financial goals.

Such examples are common when you are transitioning from one life stage to another. For example, when you have a partner as compared to when you are single. When you get married as compared to when you are still dating. When you have 2 kids as compared to 1 kid.

Yes, when I say financial planning, it’s not a one time thing. It’s regular; continuous.

Sticking To Your Budget

Now that you have created a budget, here are some tips to help you stick to it:

1. Keep your budget visible: Keeping your budget visible is one of the most effective ways to stick to it. You can print out your budget and keep it in a visible place, such as on your fridge or bulletin board. This will remind you of your financial goals and help you to make better spending decisions.

2. Avoid impulse buying: Impulse buying is a budget killer. To avoid impulse buying, make a list of the things you need to buy before you go shopping and stick to it. Avoid browsing through stores or online shopping sites aimlessly, as this can lead to impulse buying. The keyword is “aimlessly”.

3. Prioritize your spending: Prioritizing your spending is another way to stick to your budget. Make sure you are spending money on the things that are most important to you, such as your housing, food, and transportation. Cut back on expenses that are not essential, such as eating out or buying new clothes.

4. Use cash instead of credit cards: Using cash instead of credit cards can help you to limit your spending and avoid impulse buying. When you use cash, you can physically see how much money you have left and adjust your spending accordingly.

5. Find ways to save money: Finding ways to save money is another way to stick to your budget. Look for opportunities to save money on your regular expenses, such as your utilities, groceries, or transportation. You can also find ways to save money on your entertainment expenses, such as by using coupons or taking advantage of free activities.

Conclusion

No matter which angle you want to look at it, financial planning can’t do without budgeting. There are generally 6 steps on how to create your budget:

1. Determine your income

2. Identify your expenses

3. Categorize your expenses

4. Calculate your net savings

5. Have financial goals

6. Review and adjust your budget regularly and necessarily

Having created a budget, if one doesn’t stick to it, it is meaningless. Therefore, make sure you stick to it. Not only do you need discipline, it will become a habit after a certain period of time.

There are generally 5 tips that I provide here:

1. Keep your budget visible

2. Avoid impulse buying

3. Prioritize your spending

4. Use cash when you can’t control credit cards

5. Find ways to save money

With that, thank you for reading. If you think this might be helpful to other people, feel free to share. This article is written based on my own research, opinion, and experiences. If you have any comments, feel free to comment below so that we all can learn together.

Thank you for reading.

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