How to Make a Budget That Actually Works!

You probably know that you need a budget in order to help you reach your financial goals. Some sort of plan for your money can help you keep on track — and help you avoid the pitfalls related to spending more than you earn. However, creating a budget can be a bit of a challenge. If you want to create a budget that works for you, follow these 4 steps:

1. Track the Way Cash Moves through Your Personal Economy

The first thing you need to do is figure out where you are at right now. This means tracking your income and your expenses. The minimum amount of time to do this is one month. You can get a better idea of larger trends, though, if you track your money for two or three months. You can use a ledger or notebook to record income and expenses, but it might be easier if you use personal finance software, or sign up for a free budget application. Assign each expense to a category. Be sure to track the cash you spend, as well as purchases made with debit and credit cards.

2. Review Your Spending and Income

After you have taken the time to track your income and your expenses, it’s time to review how your money is moving through your personal economy. Look at the categories where you are spending the most. Recognize that you might be spending more than you earn each month. This will help you identify areas of concern before you make your budget, as well as help you realistically allocate where your money should go each month. If you are spending more than you earn, a review will help you see where you need to cut back as you make a budget.

3. Identify Your Needs and Financial Goals

Next, you need to determine what your needs are. These are items that you can’t live without. You should make sure that your budget first covers items like food, shelter and clothing, as well as transportation to work. Also, recognize your obligations and bills. Make sure debt payments are made, as well as utility payments and other important obligations.

You should also designate some financial goals. If you want to build your emergency fund, or save more for retirement, it is important that you incorporate these things into your budget. Figure out what you want to do with your money so that you can incorporate these items into your plan. Your will be more likely to stick with a budget that helps you reach your financial goals.

4. Be Realistic About Where You Need to Adjust

When creating a budget, it becomes obvious that you need to make choices. Before you budget in for wants like entertainment, you need to make sure that needs and financial goals are covered. It is also important to be realistic about what “needs” are. Yes, you need food. However, what you need are healthy foods. Junk food is not a need. Getting takeout twice a week is not a need. You can reduce your grocery bill by planning healthy meals and cooking at home. There are a number of other “needs” that are actually wants. Be honest about where your money is going, and be realistic about your adjustments.

Some financial experts say that you waste as much as 15% of your income each month. The money is probably there, and a budget can help you put it to better use, providing you with a solid foundation for a better financial future.

This is a guest post. Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She has been a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial.

The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.