9 Steps to Create a Realistic Budget That Works for You

how to create a budget that works and how to stick to a budget

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It is already mid-month! How are your finances holding up? Many people struggle with saving and spending their money wisely, which often results in their finding themselves penniless or struggling to make ends meet by the time mid-month comes along.

There are numerous reasons why people have trouble managing their finances. For some, it could be because they failed to create a budget for last month’s paycheck, didn’t set goals at the beginning of the month, had a lot of debts to repay, overspent on unnecessary things, or have a broke person’s mentality and think they don’t earn enough to save or create a budget for it.

If you are one of these people, today, we shall be discussing how you can create a successful budget plan no matter how big or small your income is, so you don’t find yourself in the same position next month.

If you don’t know how to create a budget and stick to it, you are not alone, many others don’t either. But it is important to learn how to do it as a way to develop good money habits. So, here are a few tips on how to create a realistic budget that works for you.

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9 Steps to Create a Realistic Budget That Works for You

  1. Combine all your incomes

You can’t create a good budget if you don’t know the exact amount of money you are working with. Hence, the first step in creating a realistic budget is to combine all your money from different income streams to know the total amount and plan for it. 

Make sure not to include any money that you currently don’t have, even if you expect it to come in at any moment. You know what they say about counting your chickens before they hatch.

To create a realistic budget, plan with what you have only. The only exception is if you are salaried and get paid the same amount of money every month.

Read Also: 7 Things to Do at the Beginning of the Month

  1. Get a budgeting app

After calculating the amount of money you are working with, the next step in creating a realistic budget is to get the right media to write it down.

Your sticky notes list of items and their costs might not work effectively, and the best way to create a budget that works for you is to download and install the best budgeting apps available.

Google Play and the Apple App Store have a wide range of free budgeting apps to choose from – all with different designs to cater to different users.

The best alternative to budgeting apps would be creating a spreadsheet on your computer or phone where you can list your expected monthly expenses.

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  1. List and prioritize your needs

Now that you have chosen the right budgeting app for you, it is time to populate it with what you plan on spending your money on and their costs. Before you put in the values and items, pause and consider whether you really need these things.

Differentiating your wants and needs and then prioritizing the needs, is one way to create a realistic budget that works for you.

Bills, groceries, paying off debts, and allocating a percentage of your income to your savings account, are some categories you should prioritize in your budget plan.

However, this doesn’t mean that you shouldn’t allocate any money to your wants too. What good is your money if all you ever do is use it to pay for bills and utilities but never get to enjoy having it? So, set aside some for when you want to treat yourself to something.

To balance all of them, you could use the 50-30-20 budget rule. This rule was made popular as a way to create a successful budget plan by U.S. Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan.

The 50-30-20 rule recommends that you subdivide your money into portions; 50% of your income goes to your needs, 30% to your wants, and 20% to your savings.

Read Also: 8 Tips to Manage Money When You’re Broke

  1. Use the real figures

When allocating money, be realistic about how much you expect to spend on various categories. Do not underestimate just to make the figures look smaller because understating your expenses will make your budget fail.

You can use your current monthly expenses as a guide to help you create a realistic budget that will work for you. This is also an excellent opportunity to identify where you usually overspend on things and cut off unnecessary expenses.

  1. Account for every cent and know its purpose

Your budget will fail if you create one that includes only the things you plan on spending on but doesn’t keep track of the extra money.

For example, if your monthly income is $9000 but your budget totals up to $7500, what will you do with the rest of the money?

Knowing and feeling like you have surplus money that currently has no use can be one of the reasons you don’t feel compelled to stick to your budget.

For your budget to be successful, you have to ensure that every single penny you have has some use. In the case above, you could deposit the remaining $1500 into your savings account.

Read Also: Stop Spending Your Money on These 7 Things

  1. Be prepared for the unexpected

No matter how much you plan for your money, life is unpredictable, and there are still some unexpected expenses you might incur.

Creating a budget that has no room for emergencies is a big mistake. Sometimes life gets in the way, and things happen that you had no way of anticipating, and you must always be prepared.

If you want to create a realistic budget, make sure to allocate some money for the miscellaneous and unexpected expenses you might incur, such as medical emergencies, prices going up, home maintenance, major auto repairs, unplanned travel, and gifts, among many others.

  1. Involve your partner when creating a budget

One of the biggest reasons couples fight over money is the failure to be on the same page regarding their finances.

If you are in a relationship or live with another person, involving them when creating a budget would be great.

Budgeting as a couple ensures both of you are aware of how you plan to spend your money and actively work together to make your budget work.

  1. Monitor your spending

The steps to create a realistic budget that works for you do not end with inputting your expected monthly expenses in your budgeting app or Excel sheet.

If you want to know whether your budget is successful, try it out for a month and evaluate your ability to stick to it.

Track your spending to make sure everything is going according to your budget plan.

Read Also: 9 Psychological Tricks to Help You Save More Money

  1. Make budgeting a habit

To obtain the best results, budgeting should not be a one-month-only activity.

Make it your habit and create a realistic budget that works every month. You will get used to the idea, and sticking to a budget will become easy for you.

Final Words

If you want to reach your financial goals, save more, and reduce the anxiety and stress about finances, it is essential to create a realistic budget.

Budgeting will ensure you meet your needs and wants, your money is accounted for, you stay out of debt, and live within your means. It will also guarantee you never run out of cash in the middle of the month.

If you usually struggle with managing your money, follow the above 9 steps to create a realistic budget that works for you and stick to it.

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