How to Create a Budget & Stick to It

Budgeting helps prevent overspending and encourages savings.
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The goal of creating a budget is to promote saving as well as to prevent overspending. Knowing the proper way to create a budget and make necessary adjustments when surprise expenses arise is only the first step to improving your financial future. The second and final step, which is also the most important, is to stick with the budget that you have created--and that can be a bit more challenging.

Track and List Expenses

Step 1

Using pencil and paper, start on the first day of the month and make a list of everything that you spend money on for two months. Tracking for two months allows you to make room for unexpected bills and expenses since you have an idea of what you normally spend. Use a calendar so that you can get an idea of which days of the week are generally more costly for you and carry the calendar with you all of the time.

Step 2

Categorize expenses and determine income. Next to each item, note whether the expense is a one-time expense, a weekly expense, bi-weekly, monthly, quarterly or annual. Knowing how often you pay this bill helps with budgeting accuracy. If you have more than one source of income, make a list of all of the money that you receive. If it is not a fixed amount, list the exact amounts for the two months that you are tracking and note that those amounts are variable.

Step 3

List projected expenses. Use paper or your computer to list every expense that you have, with 13 spaces next to each. In the first space next to each item, list the projected expense that you tracked for two months. The remaining 12 columns are for the months of the year. If you have annual expenses of quarterly expenses that were not accounted for, such as property taxes, magazine subscriptions, tax fees and holiday or birthday gifts, make sure to include these in your list.

Step 4

Add all of your projected expenses in each column and determine the difference between your income and your expenditures. If your expenses exceed the amount of income you make or is too close to the amount of income you have, you must either reduce the amount of money that you are spending or earn more money. Keep the necessities and reduce the amount you intend to spend on eating at restaurants and going out to the movies. Cancel your magazine and newspaper subscriptions to add more money to your income category.

Step 5

Stick to it. Making a list of your expenses is the easy part--sticking to it is where most fall short. Make it a game to keep your eye on the prize. If necessary, add a bill at the bottom of your list of expenses entitled “prize” and treat it as a bill. Pay yourself (your savings account) each month and use a portion of that to reward yourself for staying on track either once a year or once every four months. This allows you to splurge on a nice dinner or a few nice articles of clothing every now and then to keep you on track.

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