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create your budget

How to Create Your Budget (And Stick to It)

The beginning of the New Year is an excellent time to create your budget.

While you may already have a budget, or you will be creating one for the first time, having some sort of budget is ESSENTIAL to keeping track of your finances, and reaching your financial goals. For those that already have one, it may be a good time to review your current one, and see if it still applies to your situation.

Once I graduated college and knew the salary of my first full time job, the very first thing I did was create my budget. Luckily, my parents are strong advocates of keeping finances in order and helped me out immensely.

A lot of the strategies I’m going to share are ones they implemented to great success over the years. They’ve even helped me to maintain at least a 30% savings rate in my first 3 years out of school!

While setting a budget may not be a particularly fun activity (for most), I’m hoping that these suggestions can help to set you up for success in the years to come!

Some of these are similar to what I highlighted when I wrote about Living within your Means. These go hand in hand – living within your means can greatly help you in successfully executing your budget.

Here are 7 tips to create your budget and stick to it:

Know your paycheck (what hits your bank account):

This seems pretty simple, but many people over estimate how much money they actually make.

For instance: you find a job that pays $50,000 per year. However, that $50,000 does not actually hit your bank account in the year. Any pre-tax items (such as Healthcare, 401K contributions, childcare, etc) as well as the Federal and State taxes withheld can drastically lower that number.

For a single individual (assuming 25% total taxes withheld), that $50,000 per year could turn into $37,500 hitting your bank account, or even lower adding in any pre-tax deductions.

This would mean instead of getting over $4,000 in your bank account every month, it’s all the way down to $3,000 per month.

It may be beneficial to see your very first paycheck to know how much money you will be bringing in for sure, then adjust your budget as necessary. At minimum, you want to make sure you will have enough income coming into your bank account, in order to pay off your expenses.

How often you get paid:

In addition to knowing your paycheck, you must know how often your company sends out your paycheck.

Bi-weekly? Semi-monthly? Monthly? Weekly? Or Other?

Semi-monthly, monthly or weekly will be a little easier. You can either divide your yearly take home pay by 12, or multiply your paycheck by 2, and that will be exactly what you bring in each month throughout the year.

Bi-weekly is a little different though. As you get a paycheck every other week, there will be 26 paychecks each year. That means each paycheck will be a little smaller, but twice a year you will get 3 paychecks in the month.

One recommendation if you’re in this situation: plan your budget based on two paychecks per month. If you can manage this, that means the third paycheck will have no obligation and can be for anything!

My company pays bi-weekly so I always send those extra paychecks straight to savings 🙂

Know your monthly expenses:

For those that are already in the workforce and have a history of past months of spending, these will be very helpful to know. Take a look at past credit card statements to get a general sense of what you spend.

For instance, it would be pretty useless to budget $50 towards utilities when you know that the monthly expenses for that are consistently around $100.

If your spending is much higher than you’d like, identify areas where you can cut down and be cognizant of that in future months.

If you’re just starting out, it may be tougher to gauge as you don’t have a history of spending. However, make an estimate of where you want to be at, based on your goals, and try as best you can to make this total number below what your paychecks total for the month.

That way if you hit your budget, you will have money left over for savings 🙂

Some great resources to help categorize and track your spending include Personal Capital, Mint, and depending on what credit card company you use, they sometimes break it out for you as well. These are all free!

Make your budget as detailed as you like:

Common items that nearly everyone has in their budget include:

  • Rent/Mortgage payment
  • Utilities
  • Food
  • Cell Phone
  • Medical
  • Entertainment

If people have monthly student loans, or car payments, those would be included as well.

Everyone has their own preference for how detailed their budget is. Many keep it under broad categories and view at a high level (such as rolling up groceries and restaurant spending under “Food”).

Others get very detailed and assign budgets to individual items such as Clothing, Books, Movies, etc.

The choice is totally up to you and really depends on your situation. If you are trying to cut spending in a specific category, it may be beneficial to give it an exact number and see if you can stick to that.

Don’t forget non-monthly expenses:

When you create your budget don’t forget to include any expenses that aren’t recurring monthly!

For some people these include:

  • Auto/Homeowners/Life Insurance
  • Property Taxes
  • Holiday Gifts
  • Travel

Many of these expenses happen only 1-3 times a year so you don’t want to forget about them!

Depending on how often they occur, you can account for them monthly by simply dividing the total expense by 12 if it occurs once during the year, dividing by 6 if it occurs twice, or by 4 if three times.

Plus, don’t forget about the last two. It’s always nice to give gifts to others around the holidays if you can afford to, and if you like traveling, make sure you budget for your next trip!

Add in a Savings line item:

One thing that greatly helped with my Savings was adding in an individual Savings line into my budget.

It was my goal each month to make sure I fulfilled my entire budget and “spent” $250. Of course by spent, I mean spent right into my savings account 🙂

As Warren Buffett (kind of a pretty wealthy guy!) once said:

“Don’t save what is left after spending, spend what is left after saving”

No matter how much that is – $50, $100, $250 or more… by making it a priority to save those dollars, then spend what you have leftover, you’ll find that your Savings account, and wealth, will grow quickly.

This is also a great way to build an emergency fund to cover any unexpected expenses not included in your budget!

Be Flexible and Realistic:

Lastly – be flexible, be realistic and don’t be too hard on yourself.

While budgets are meant to be set and left alone, every now and then they require tinkering depending on your situation.

If you find yourself moving to a new apartment with a different rent, have a new job and different commute, or expenses rise on you (ie. Cell Phones), these merit an update to your budget.

I know that personally, my budget has slightly changed for 2018 after I analyzed my spending habits from 2017.

Also, make sure to set a realistic budget. Don’t be afraid to challenge yourself in certain areas, but too many drastic inputs or changes can make achieving your goal next to impossible and lead to discouragement.

If you go over your budget in one month, it’s not the end of the world. There is always the next month, or the month after where you can focus on getting within your spending target.

The most important thing is to be aware of your budget and spending habits. By simply having a number in your mind for any category, that can help drive how you act and what you actually spend throughout the month.

See below for my own monthly 2018 Budget as a reference! Living in a High Cost of Living area (DC), my budget may be a little higher than others you see. I’m also definitely more along the “broad categories” budget I mentioned earlier 🙂

*Note – I do not have a Savings line in my budget anymore as I have built up my Emergency Fund and am focusing on maxing out my 401K.

Feel free to copy down my template or categories!

If you’d like a version you can download to excel, head on over to Budgets Are $exy. They have excellent pre-made budget templates you can sign up for free for yourself! Personal Capital and Mint also have great budgeting tools to use.

Best of luck creating your own!

12 thoughts to “How to Create Your Budget (And Stick to It)”

  1. We actually have never been very successful at sticking to a traditional budget. When paying off my student loans, I simply shoveled as much as I could to them and lived off the rest. Now, we are doing awesome at just setting a spending cap in general and just making sure everything fits within that number. A little unconventional, but it works for us 🙂

    1. Chiming in to admit that I, too, don’t really have a budget per se. I’ve been tracking for a year so know my general averages. I track every day on Personal Capital but as far as setting limits for categories, nope. I know that makes me a bad personal finance blogger!

      1. I don’t think that makes you a bad blogger!

        I think it’s much more important that you’re tracking your expenses and know exactly what you spend each month, so that way you can adjust if you know you’re not on track to meet the goals you have.

    2. It looks like you’re taking Warren Buffet’s quote to heart then 🙂

      Also, you could technically say you have a budget, you’re just setting it at the highest level it can possibly be at! (no categories)

      If that works best for you then that’s all that matters!

      1. Actually, I’d say it’s actually at a much lower level – whenever I’ve tried setting a budget I’ve always ended up spending to that amount. By artificially setting it too low, it forces me to really evaluate every purchase, even the “essentials.”

        1. This one was in spam too… So weird that happened twice! 🙁 I do know what you mean.. I’ve been thinking the past week or so and may be looking to lowering the budget I just listed to give me a challenge to achieve 🙂

  2. You weren’t kidding on that new auto insurance rate! Great job, that’s a steal. Your fuel budget is up there, I guess you must have a fairly long commute.

    Good post. Really enjoying your site so far.

    1. Yea it’s about 65 miles round trip which has been getting old very fast. Looking to see if I can potentially be transferred to a different department which would be located much closer to where I live now.

      Might be worth seeing if you can find a quote for a cheaper amount for your own insurance! It can’t hurt just to see what else is out there 🙂

      Thanks for reading!

  3. I know how that is. I commuted 72 miles round trip for a little over a year. Too much to take. I am definitely going to be looking for new auto insurance quotes!!

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