As a finance coach, the main question I hear from my client’s is, “How do I create a budget that really works for me?” While there is really no definitive answer, there are a few things you can do to create a budget that fits your needs. Will it always work? No, because needs change and life happens. What you want to do is create a budget that you can stick to, but allow room for those changes that will ultimately take place.
What you are doing is creating a plan that ultimate budget, so be prepared to stick with it for the long run. Don’t get discouraged if it doesn’t work very well for the first several months. It takes time to create new spending habits as your income fluctuates. After all, you didn’t get into this financial rut over night and you won’t get out over night. Here are a few tip’s to help you create a realistic budget.
Base your income and expenses on reality- Do not create a budget on estimates. That is where people fall short and why the budget doesn’t work. Start by reviewing and listing your spending for the last three to six months. I know this may be time consuming, however, you won’t get a full picture by only writing what what you spent for one month. You may forget transactions that only happen on a quarterly basis, such as, an oil change or income bonuses at work. Be honest with yourself so you don’t leave anything out. You want your budget to be as accurate as possible to make sure you actually stick to your monthly spending goals. To do this, you need to base your budget on reality using correct figures.
Choose your method- When it comes to methods, there are a myriad of way’s and plan’s you can use, your choice is important. You may want to try them out for a few months to see what works best for you and your family. Below are a few plans you can choose from.
- The 50/30/20 rule- This rule breaks down your spending habits into 3 categories with certain percentages. This method, based on your income, essential expenses, such as, utilities, food and shelter make up 50%of your spending. Unnecessary expenses, such as, cable, internet and cell phone make up 30% of your budget. Your future goals, such as debt repayment, savings, and retirement funds make up the remaining 20%.
- Fixed and variable expenses budget- This method divides your budget into two categories, fixed versus variable expenses. You can only lower the payment of fixed expenses, like car insurance, or mortgage payment, so much, but eating out expenses and entertainment fall under discretionary spending, which can be cut back if needed.
- Bare bones budget- This budget is based on your lowest possible monthly income. If you are self-employed, or work a commission based job, this type of plan may work best for you. Create a plan based on absolute necessities that you need to survive, with any other money seen as gravy.
Find a tracking method- Now that you have calculated how much you spend, what your income is, and come up with a plan that works for you, it is now time to decide how you will track everything each month. Are you the tech-savvy type and prefer to track your daily spending on a mobile app? Or maybe you would prefer the old fashioned way where you carry a notebook and record your transactions. Either way is fine, it is up to you. If you are tech-savvy, here are a few options that I find helpful.
- Mint.com’s completely free web-based service and mobile app.
- You Need a Budget’s desktop software.
- Microsoft’s free monthly budget templates are easily downloadable
Again, you may need to test out a few online tools or spreadsheet templates to see what works best for you. Once you find one, stick with it.
I have included my free budgeting ebook for more information on creating a budget specifically for you, click below to receive.
If you need further assistance in crafting a budget that works for you then book a consultation with me.