Only about 32 percent of Americans create a personal or household budget, but about half of American households are living paycheck to paycheck. A MetLife report found that 49 percent of working Americans are concerned or anxious about their current financial well-being, yet many are finding it difficult to create and stick to a budget to help them better manage their finances.
What makes budgeting so hard? One of the biggest reasons is that people don’t want to. Budgeting forces them to not only look at their spending but make adjustments that could alter the lifestyle they’re accustomed to which can be difficult to give up. Another big reason is that people are willing to stick with it until a birthday, the holidays, or another type of “exception” pops up, throwing off their hard work and discipline.
As difficult as budgeting can be, getting into the mindset and practice of budgeting can help you work your way toward financial freedom, flexibility, and stop living paycheck to paycheck.
How to Make a Budget
The very first thing you need to do when making a budget is grab a pen and paper so you can write everything out. Too many people try to budget in their heads, but if you don’t write everything down it’s easy to forget or leave something out, guess the cost of an expense wrong, and throw off your entire budget—it also makes it harder to stick to it. After you’ve grabbed a pen and paper, you’re ready to get started.
Write down exactly how much you bring in. Be sure to factor in not only the income (post-tax) from your job but any regular income you bring in on the side as well.
Make a list of your monthly bills and expenses (do the necessities first). After you know how much you’re bringing in, make a list of everything your money is spent on every month. You’ll want to list necessities first, like rent/mortgage, car insurance, health insurance, utilities, phone bill, Internet bill, etc.
Track your monthly spending. After you’ve made a list of your monthly expenses, track how much you spend each month. You can look back at bank statements or spend the next month keeping track as you go. You might be surprised at just how much you spend and on what.
Make goals. Once you have a good idea of how much you have coming in, your expenses, and what you’re spending, it’s time to make goals to cut back in the unnecessary areas, put more money towards savings, stop living paycheck to paycheck by a certain date, etc.
Make any necessary adjustments to your habits. After you’ve made your goals, you’ll need to make any adjustments to your spending habits necessary. This may mean cutting out your afternoon soda pick-me-up or canceling Netflix to stay in the budget.
Evaluate your budget and your spending at the end of every month. Budgeting isn’t a one and done type thing. You’ll need to sit down and evaluate your budget and your spending again at the end of every month. This will help you stay up-to-date and better on track.
Methods to Help You Stick to It
Making a budget is the easy part—it’s sticking to it that’s hard. Some people choose to use different methods to more or less force themselves to stick to the budget that they have, so if you’re finding it hard to stick to your budget, you might want to consider trying one of these methods to help.
Keep cash in envelopes. One popular method of budgeting is cashing your paycheck instead of having it direct deposited and dividing it between labeled envelopes. This ensures that you won’t have any extra money to tempt you. If you’re at the grocery store and you find you’re a little over budget, you’ll have to put something back instead of justifying the extra cost.
Set everything to auto-pay. Setting all of your bills to auto-pay means that you can’t push the payment until the last possible minute—everything will come out when it’s scheduled to come out, encouraging you to make sure the funds are there when they need to be and better keeping you in budget.
Get rid of your credit card(s). Credit cards make it easy to overspend—they’re kind of like a lifeline. They can also cause a lot of trouble. Getting rid of your credit cards will get rid of the temptation of overspending and help you better stay within your budget.
Ways to Cut Down on Your Monthly Expenses
If you’re finding that you’re still struggling to stay within budget, or you want to be able to save more money each month, here are some ways that you could cut down on your monthly expenses and keep more money in your pocket.
Cut out any subscription services. Subscription services like Hulu, Amazon, and Netflix add up fast. Cutting them out can save you a lot of money. Although it may be a sacrifice, there are other free options that you can take advantage of to fill the void.
Go minimalist. In the case of budgeting, minimalism means cutting out anything that is non-essential. That means eating out, Netflix, and gym or club memberships are all out, and you only pay for necessary bills like utilities, mortgage, gas, insurance, food, and phone.
Consider a balance transfer. A balance transfer can help you better manage your debt by saving on interest payments and putting all of your payments in one place. Having all of your debt in one place can also help you keep better track of your expenses and better stay on-budget.
As difficult as sticking to a budget can be, most find that it’s worth it. Budgeting helps them achieve their goals, stop living paycheck to paycheck, and feel less anxious about their finances. Do you keep a budget? What aspect is hardest for you?