How to build a budget that actually works.
Make your money work for you
Creating a budget — or spending plan — does more than show you where your money goes each month. It reduces financial anxiety, helps boost savings and puts you in control of your future and your goals. Here are four ways to build a budget that works for you.
- Identify your financial goals.
Think of your budget as a roadmap to reach your personal goals — both short term and long term. That may include a down payment for a new home, a family vacation, paying off credit cards or simply purchasing a new winter coat. Choose goals you can get excited about and put them in writing.
- Review spending and income.
Look at your total income and expenses for an accurate picture of your current financial situation. Remember to include semi-annual and annual bills, along with variable expenses like groceries, holiday and back-to-school shopping and vehicle maintenance. If you’re not already, keep track of all of your spending for at least a month. Write it down, or use online and mobile tools that make it easy to track spending on-the-go. You might discover that you’re spending more than you thought in certain categories, like food and entertainment.
Keeping your goals in mind, rank needs and wants in order of importance in the following categories:
If you find yourself with less money than you’d like at the end of the month, find ways to trim expenses, starting in the non-essential categories. Consider your priorities and cut back in areas that aren’t as important to you, so you’ll feel less deprived. For example, could you cancel a subscription you don’t use or eat out twice a month instead of weekly?
- Fixed and essential expenses, like housing and car payments
- Variable and essential expenses, like utilities and groceries
- Variable and non-essential expenses, like concert tickets and nail care
- Put savings and fixed expenses on autopilot.
Set up automatic payments that deposit a set amount in your savings account. By paying yourself first each month, you’ll make steady progress toward your goals and feel that much more motivated. You may also find it’s easier to save when you don’t see the cash in the first place.
Tips for Sticking to Your Plan
Remember, the purpose of a budget is to make your goals more attainable. Keep your eye on the prize and follow these tips to make your budget work for you:
- Revisit your plan periodically and make adjustments as needed
- Consider using cash only for categories where you tend to overspend
- Consider the big picture before making a purchase
- Use automated tools to help monitor your budget, pay bills and save