How to Create a Budget You Can Actually Stick To
Confession time! As newlyweds, we did not have a monthly budget. In fact, we were one of those couples that didn’t really talk about money. Except for the fact that we always seemed to be wondering where ours disappeared to. After doing some research, we realized that successful people -- people who were winning with money -- actually knew where theirs was going. It wasn’t just about how much they made but how they chose to spend it.
Simply put, we needed to get on a budget. And fast. Creating a monthly budget was hard at first but it has helped us take control of our finances and pay off thousands of dollars worth of debt, while learning contentment and gratitude.
If you’re wondering how to create a monthly budget you can actually stick to, then read on:
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STEP 1: FIGURE OUT YOUR WHY
Don’t just get on the budget bandwagon because everyone else is doing it or because the debt free community sounds like a place you’d like to move to one day. Unless you identify your own vision for you and your family, your commitment level won’t be as strong.
When was the last time you thought about what you want your future to look like in great detail? Try not to limit yourself when it comes to writing out your hopes and aspirations. It’s so important to dream big and then put in the work to get there.
We cleverly named our dreams as “vision 2020” because that so happens to be our 5-year wedding anniversary. So, here goes:
100% consumer debt free *We are 80% there as of February 2017
Pay down 50% of the principal on our mortgage
Have a fully funded emergency fund (3-6 months of expenses)
Start saving for retirement
Pay cash for an anniversary party
Note: If you are struggling with paying off your debt, specifically student loans then I highly recommend refinancing your loans if you've got a good credit score, a stable income and a desire to get out of debt quickly. You can use LendEDU which is a free tool to see which lower interest rates you may qualify for and potentially save thousands in interest! The application only takes 90 seconds ya'll and it doesn't hurt your credit.
Step 2: Review your habits.
Armed with your vision, it's time to develop your roadmap. Ironically, that roadmap involves taking a step back to review your current spending habits and relationship with money.
The purpose of this exercise is not to beat yourself up over the $200 you spent at Starbucks last month but to recognize the habits that might be holding you back from taking control of your finances and achieving your vision 2020 (or whatever name you’ve come up with in Step 1)!
Try not to guesstimate during this step but instead carefully review your bank and credit card statements over the past 90 days. If money came out for any reason it must be placed into a spending category.
In our case, we decided to separate our spending into needs versus wants. Each month we needed to spend on:
Housing (Mortgage Payment)
Electric and Heat
IMPORTANT: If the first three items above add up to more than a third of your income, then it might be wise to make some big decisions such as finding cheaper housing or ways to increase your income.
All other spending, fell under nonessential spending such as gym memberships or eating out weekly.
At this point, we started to go into each line item to determine what we could cut back on or get rid of all together. We were surprised at what we were able to accomplish!
RELATED: See how we cut our monthly spending by half in 2016 in my previous blog post.
Step 3: Find some tools to keep you on track
Now that you've figured out how much you should be spending based on your income and monthly needs, it's time to stay on target. Fortunately there are a ton of apps and other options that can help you out:
- Mint was one of the first budgeting apps I tried out. I loved that it was free and allowed you to link all your accounts at no extra cost.
- I haven't tried the Every Dollar App as yet. This one was put out by Dave Ramsey and is based on the concept of zero based budgeting (every dollar earned must be accounted for). With this particular app, you have to upgrade to the paid version in order to link your accounts.
- So many people are big believers in the cash envelope system. It's pretty straightforward and a great way to stay accountable but keeping all that cash on hand isn't always ideal.
My preferred method for budgeting each month is Google Sheets. It's super easy to navigate, update and tweak. One downside is that you have to manually enter data. However, this isn’t a huge turnoff for me because it keeps me accountable because it isn't automated. I'm more in control of the numbers and spending each month.
I hope you found these steps useful. Leave a comment below to let me know how you are doing with budgeting each month.