It can be tough sticking to a budget – especially when you’re just getting started with budgeting.
But sticking a budget can be incredibly rewarding. Budgeting can help you retire early, pay for your kids’ eduction, or buy your dream home.
Follow the easy tips below to stick to a budget and help make your financial goals a reality.
1. Create a reasonable budget
Think of a budget like a diet – if it’s too restrictive, you increase the risk of not following it or abandoning it altogether.
You want to create a budget that is realistic based on your regular spending habits and lifestyle. It’s difficult to stick to a budget if it doesn’t align with your unique situation.
A reasonable budget includes spending categories for all the different ways you spend your money. It also includes a reasonable amount in each category that is consistent with your spending habits. While you may want to cut back in certain areas, cutting back too much might not be realistic.
To help you create a reasonable budget, I recommend using your purchase history to help you figure out the different ways you spend your money (the spending categories) and how much you spend in each category.
If you’re like me, you might be shocked at how much you spend and how you spend it. But knowing this information is key to creating a reasonable budget. The purchase history in your bank and credit card statements will help you create a budget that works for your situation.
Check out Easy Budgeting: How to Use Past Purchases to Create a Budget for instructions on how to use your purchase history to create a reasonable budget.
2. Allow for entertainment & splurges
It can be tempting to exclude entertainment from your budget. After all, if you’re trying to get your finances together, you should cut out all excess costs, right?
But entertainment might not be an excess cost if it is essential to maintaining your piece of mind.
You don’t need to set aside a lot of money in this category – just a little bit every month so that you can get out of the house and enjoy yourself a little. Maybe you set aside $25 or $50 every month to go to a show.
You can also set aside a little each month that accumulates for a bigger event. You can set aside $25 for four months and have $100 after four months to spend on a nice outing.
The same goes for splurges – you can set aside a little each month to allow for a nice purchase every few months.
3. Track your spending
It’s difficult to know if you’re actually sticking to a budget if you don’t track your spending.
While it may sound tedious to track your spending, there are plenty of apps out there to automate the process for you. These apps automatically compare what you’re spending against your budget. That makes it easy to see if you’re meeting your budget goals.
I use Mint.com to track my spending. It links to all your different accounts so that you can see all your purchases in one place. That makes it super easy to track your spending. Plus, it’s free. And free is good when you’re budgeting!
EveryDollar is another spending tracker you can use. EveryDollar’s budgeting app is free. It’s spending tracker (EveryDollar Plus) costs $8.25 per month or $99 for an annual membership. (I use EveryDollar’s free budgeting app, but stick to Mint.com for the free spending tracker.)
This article provides step by step instructions on how to track your spending.
4. Anticipate the unexpected
It may seem strange, but to create a budget that you’ll stick to, you need to anticipate the unexpected. Something is probably going to come up during the next month or year that you didn’t anticipate.
You might need to buy a gift for an unplanned party or have unexpected car repairs. Events like this can derail your budget if you don’t plan for them.
One option is to set aside some money every month in a category called “Unexpected Expenses.” If you don’t have any unexpected expenses, you can use the money at the end of the month to help with a financial goal (like saving for retirement or paying down debt).
Another option is to set aside money every month for an Emergency Fund. Establish a goal amount for your Emergency Fund, like six months of necessary expenses. Necessary expenses include costs like your mortgage, rent, utilities, etc. – the things that you absolutely have to pay for, no matter what.
Once your reach your goal amount for the Emergency Fund, you can leave this item out of your budget. When the unexpected happens, you can reduce your Emergency Fund and then increase it back to your pre-set amount by including it in your budget over the next few months.
I use both in my budget. I have an Emergency Fund for the big ticket surprises (like car repairs and medical bills) and use an Unexpected Expenses spending category for smaller surprises (like unexpected gifts or parties).
5. Make adjustments
Sometimes your budget isn’t going to go to plan. When that happens, it’s important to admit when something isn’t working and make adjustments.
I really struggled with spending categories when I first started budgeting. Spending categories are important because that’s how you decide where your money should be spent. If the spending categories aren’t aligned with your situation, it’s going to be tough to stick to a budget.
I added, deleted, and modified my spending categories several times during the first six months when I started budgeting. But after six months, I had created a good system that worked for me.
If I had stuck to my original spending categories, I probably would have given up on the budget altogether.
You might also find that the amount you budgeted for a spending category just won’t work for your situation. I had to shift money from my clothing category to my food category. I just love dining out too much to skimp in that area.
During your first few months of budgeting, you’ll probably need to make changes. But don’t give up! It’s worth the time investment to secure your financial future.
By following the easy tips above, you’ll increase your chances of actually sticking to a budget and achieving your financial goals.
Want more? Check out Create a Budget: Easy Step-by-Step Tutorial.