Creating A Budget That Works

Having a budget is one of the first steps toward building sound money management skills. A budget will help you track your expenses and identify areas where you can save. It can help you plan to get out of debt, reach retirement, and fulfill your financial dreams.

Step 1: Set Your Financial Goal

To successfully budget, you have to identify your reasons for wanting to change your financial situation. Sit down and write down your goals. Whenever you are tempted to spend or skip balancing your checkbook, look at your goals. They will motivate you to do what is necessary to pay off your debt and save for the future.

Step 2: Track Your Expenses

In order to properly create a budget, you will need to track your expenses for at least three months. Simply get receipts for everything you purchase. Once a week or so, take some time to record your receipt in a notebook or spreadsheet. Break them down by category. Finish out your budget by including all of your monthly and yearly bills.

Step 3: Cut Unnecessary Spending

Once you have tracked and identified your spending, you can review it and see where to reduce unnecessary spending . This will be very helpful in finding the money to pay off debt and save. One of the best ways to find money for your savings is to reduce your debt. By reducing your debt, you free up a lot of money in your monthly budget and in your future.

Step 4: Create A Realistic Budget

A home budget is often harder to stick to than it is to create. Too often, people take the time to develop a budget, then file it away and never look at it again. Here are a few tips for making your budget work for your finances:

  • Review it repeatedly. Like balancing your checkbook, the more you do it, the better it works.
  • Remember that it can and will change over time. Finances are not set in stone; they need modifying.
  • When you are not meeting a spending goal, look at it and readjust it if needed. Too many goals are unrealistic. Start small and work your way up.
  • Do not use someone else's template for your budget. Finances are unique to each family or individual. Your spending needs are not like anyone else's. Create your own budget based on your spending and goals.
  • Keep your overall financial goals in front of you. These goals will motivate you to stick with your financial plans. Your budget is just a plan—nothing more.

Don’t Get Discouraged

If, for some reason, you fall off the budget wagon, do not worry. Just pick yourself up, find out why it happened, and start budgeting again. We all have our moments that throw our budgets off. All you can do is adjust your budget and your thinking. Remember your goals. Think about a comfortable and early retirement. Don't worry about finding the money for your son's college education. Think about that vacation or new furniture that you want to save for.

Start Savings Accounts

One of the best forms of protection for your budget is having two savings accounts. One is for emergencies, and the other is for annual expenses. Your emergency savings will prevent accidents, breakdowns, and other unexpected events from hurting your monthly budget. If you have a fund that will fix the air conditioner or cover a lapse in income due to illness, your budget can keep working. Most advisors recommend having at least three months' worth of expenses in your emergency savings.

Your annual expense savings account is where you keep the money for your yearly expenses. Simply total up all of your once-a-year expenses. Include birthdays, holidays, insurance premiums, taxes, and other yearly costs. Divide the total by twelve. Every month, you will deposit this amount into your savings. The idea is not to have to stretch your budget to pay for something you did not plan for.


Saving money and managing your finances take discipline. However, once you get into the budgeting routine in a way that works for you, it can become painless over time. Figure out a realistic goal for yourself and stick to a plan. Before you know it, you’ll have limited your spending habits and increased your savings.

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