How to Create a Realistic Budget and Stick to It

Budgeting is one of the most important skills you can learn to manage your money effectively and achieve your financial goals. A budget is a...

Budgeting is one of the most important skills you can learn to manage your money effectively and achieve your financial goals. A budget is a plan that shows how much income you have, how much you spend, and how much you save or invest each month. 

A realistic budget is one that reflects your actual income and expenses, as well as your priorities and preferences.

However, creating and sticking to a budget can be challenging for many people, especially if they are not used to tracking their money or have irregular income or expenses. In this blog post, I will share some tips and steps on how to create a realistic budget and stick to it.

Step 1: Calculate your monthly income

The first step in creating a budget is to calculate how much money you have coming in each month. This includes your salary, wages, tips, bonuses, commissions, interest, dividends, alimony, child support, government benefits, or any other sources of income. If your income varies from month to month, you can use an average of the last 12 months or the lowest amount you expect to receive.

You can use the Income Tracker tool¹ from the Consumer Financial Protection Bureau (CFPB) to record all of your income sources and calculate your monthly total.

Step 2: List your monthly expenses

The next step in creating a budget is to list all of your expenses for each month. This includes your fixed expenses, such as rent or mortgage, utilities, insurance, car payments, loan payments, subscriptions, or memberships; and your variable expenses, such as groceries, gas, clothing, entertainment, eating out, hobbies, or gifts. You should also include savings and investments as part of your expenses, such as retirement accounts, emergency funds, or other goals.

You can use the Spending Tracker tool² from the CFPB to record and categorize all of your spending and calculate your monthly total.

Step 3: Compare your income and expenses

The third step in creating a budget is to compare your income and expenses and see if you have a surplus or a deficit. A surplus means that you have more income than expenses and can use the extra money to save more, invest more, pay off debt faster, or treat yourself. A deficit means that you have more expenses than income and need to find ways to reduce your spending or increase your income.

You can use the Budget Worksheet tool³ from the CFPB to compare your income and expenses and see how much money you have left over each month.

Step 4: Adjust your budget

The fourth step in creating a budget is to adjust your budget according to your needs and goals. If you have a surplus, you can decide how to allocate it among your savings, investments, debt repayment, or spending categories. If you have a deficit, you can look for areas where you can cut back on your spending or find ways to boost your income.

A common method for adjusting your budget is the 50/30/20 rule⁴, which suggests that you allocate 50% of your income for needs (such as housing, food,

transportation), 30% for wants (such as entertainment, hobbies), and 20% for savings and debt repayment. However, you can also customize your budget according to your own preferences and priorities.

Step 5: Track and review your budget

The fifth and final step in creating a budget is to track and review your budget regularly. Tracking your budget means recording every transaction that affects your income or expenses and comparing it with your planned budget. Reviewing your budget means analyzing how well you are following your budget and making any necessary changes or adjustments.

You can use various tools and methods to track and review your budget, such as apps, spreadsheets, envelopes, or journals. The key is to find a tool that works for you and helps you stay on top of your money. You should also check in with your budget at least once a month or whenever there is a significant change in your financial situation.

Tips for Sticking to Your Budget

Creating a realistic budget is only half the battle; sticking to it is the other half. Here are some tips that can help you stick to your budget and achieve your financial goals:

• Set SMART goals. SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound. Having SMART goals can help you stay motivated and focused on why you are budgeting in the first place.
• Automate your savings and payments. Automating your savings and payments can help you avoid missing deadlines or overspending on impulse purchases. You can set up automatic transfers from your checking account to your savings account or investment account every month. You can also set up automatic payments for your bills or debt payments every month.
• Use cash or debit cards instead of credit cards. Using cash or debit cards instead of credit cards can help you avoid overspending or accumulating debt. Cash or debit cards can help you limit your spending to the amount of money you have in your account or in your wallet. Credit cards can tempt you to spend more than you can afford or pay high interest rates if you don’t pay off your balance in full every month.
• Track your progress and reward yourself. Tracking your progress and rewarding yourself can help you stay positive and encouraged about your budget. You can use charts, graphs, or apps to visualize your progress and see how much closer you are to your goals. You can also reward yourself with small treats or splurges when you reach certain milestones or achievements.
• Seek support and advice. Seeking support and advice can help you overcome challenges and learn from others who are in a similar situation or have more experience. You can join online forums, groups, or communities where you can share your budgeting tips, struggles, and successes. You can also consult a financial planner, counselor, or coach who can offer you professional guidance and advice.

Conclusion

Budgeting is a powerful tool that can help you take control of your money and achieve your financial goals. By following these steps and tips, you can create a realistic budget and stick to it. Remember that budgeting is not a one-time event, but a continuous process that requires regular monitoring and adjustment. Budgeting is also not a punishment, but a reward that allows you to live the life you want. Happy budgeting! 😊