Steps to Build a Budget (and How to Stick to It)

A budget is one of the most basic tools people can use to improve their financial situation. But that doesn’t mean it’s easy. If you build a budget that doesn’t take into consideration certain factors at the start, then there’s little chance it’s going to work. And even after your budget is built, there’s still the task of sticking to it.

Here are 6 steps toward building a better budget that works for you, and three tips that keep you on track!

Build Your Budget …

1) Set Your Goals

There are different reasons to make a budget. It could be as broad as “I want to save more money each month” or as specific as “I want to save $3,000 this year so we can take that trip” or “I want to buy a house in five years.” Identifying goals will help guide decisions along the way.

2) Calculate Your Income

Take a look at your paystubs and any other regular, reliable sources of income over the course of any given month and add them up. If you work on commission or make tips, take a conservative guess that leaves room for a “down week” or sickness.

3) Calculate Your Expenses

Start first with the recurring bills you know you have to pay (rent/mortgage, utilities, credit cards, student loans, streaming services, gym memberships, cable/internet, etc.). Then, take a look at your variable expenses. These items that are more fluid from month to month, like groceries, gas, entertainment, and general shopping. Look back between 3-6 months and estimate about how much you spend on each.

4) Differentiate Between Needs and Wants

Take a look at your list of expenses and bucket them as either Needs, Wants, and Nice-to-Haves. This is a good time to remember that saving is a need! Putting your expenses into these categories will help you make decisions later about where to spend and where to hold back.

5) Make a Plan to Reach Your Goal

So far, it’s been research, organization and prioritization. You have the numbers, you know your goal, so it’s time to take that information and make a plan to get from where you are to where you want to go. There are several well-established budget plans, such as the 50-30-20 rule (50% of your money on needs, 30% on wants, and 20% on saving and/or paying off debt). Play with the numbers and determine what works best for you. Want to save more money faster? Swap the 30 and 20 roles altogether. If you keep your goal in mind, you can always adjust and make the numbers work for you. Check out this 50/30/20-rule calculator from OPERS.com.

6) Change Your Habits as Needed

Your plan may involve having to change some spending habits, but it’s important to make these changes manageable. If you cut all your wants, you’re more likely to get frustrated and fall off course at some point. Start small so you start to see the benefits and then make more or bigger changes that fit your plan.

... And Stick To It!

1) Use Tools to Monitor

So far, it’s been research, organization and prioritization. You have the numbers, you know your goal, so it’s time to take that information and make a plan to get from where you are to where you want to go. There are several well-established budget plans, such as the 50-30-20 rule (50% of your money on needs, 30% on wants, and 20% on saving and/or paying off debt). Play with the numbers and determine what works best for you. Want to save more money faster? Swap the 30 and 20 roles altogether. If you keep your goal in mind, you can always adjust and make the numbers work for you.

2) Make Changes When Things Change

If your income or expenses suddenly change (for better or worse), it’s important to readdress your budget to make sure it still works for you. Large, unexpected expenses like car damage or necessary home repairs can mean you have to pivot for a few months until you’re caught back up. The point is, your budget will likely need to be revised at one point or another.

3) Reward Yourself

On the way to reaching your goal are various milestones that are worth celebrating. Make a point to “cheat” a bit (even though it’s not really cheating if it’s part of the plan). Sticking to a budget isn’t easy; rewarding yourself now and then will help you appreciate the sacrifice.