How To Create A Budget You Can Stick To

4 min to read

One of the most important steps to financial freedom is having a plan for your money. The right plan can help you direct your financial resources in a way that helps you reach your goals — including retirement.

Even though your financial plan is an important part of your long-term success, it can be difficult to sit down and put it together, especially when it comes to the month-to-month budget portion of your overall plan. The way most people budget makes it difficult to stick to a plan. When it’s just a dry list of expenses that come out of your income, it’s impossible to get excited about what you’re doing.

You need to change your approach to budgeting.

Creating a budget you can stick to is mainly about two things: building it around your priorities and being realistic.

Identify Your Priorities and Budget Accordingly

The first step in creating a budget you can stick to is to identify your priorities. What are the things that are most important to you? Be specific about these goals, whether they are long-term or short-term.

Think about what makes you tick, and what you eventually want your life to look like. When I first put together my monthly spending plan, I thought about what I wanted my money to accomplish on my behalf. Of course, I do need to live. Food, housing, clothing, bills, and transport are all things that I find helpful in my day-to-day life.

However, it’s not important for me to have designer clothes or live in a big house. Since these aren’t priorities for me, my housing expenses are quite modest, and I have a minimalist wardrobe that is inexpensive and easy to care for.

Other priorities that reflect my personal values include donating to charity, providing educational and enriching extracurricular activities for my son, and travel. Priorities that reflect my families long-term lifestyle desires include retirement (my husband and I hope to travel, living in different locations for two to six months at a time) and helping my son pay for his higher education.

After identifying the most important items for your life (these could include paying off debt, saving up for a down payment on a house, buying rental properties for passive income, buying cars with cash, or any number of other goals and lifestyle tweaks), you can create a budget around these goals.

If saving up $1 million for retirement is important to you, the contribution needed to make it happen each month needs to be at the top of your expenses list, right after survival items like food and shelter. Order your expenses according to importance. When you run out of income, start dropping the items from the bottom of the list up.

This method also allows you to see that you might need to look for ways to earn more money so that you can pay for what’s most important to you. Sit down and approach your budget from a priorities perspective, and your spending plan will become more about creating the life you want, rather than simply going down a list to make a bunch of payments.

Be Realistic

If you have $40,000 in debt, it’s probably not realistic to expect to pay $5,000 a month and be out of debt in eight months. While it’s been done, it might not work for your family. Creating a budget with a goal like that in mind is likely to fail.

Instead, be realistic about your situation. What is your family willing to put up with? Another part of being realistic is to use online calculators to determine what certain items cost. From determining what mortgage payment you can afford to figuring out how much you need to set aside for retirement each month, online calculators and other tools can provide you with a realistic view of what needs to happen.

Realism in a budget based on your priorities will likely help you find a way to make it all work. If you need to earn extra money by picking up shifts, selling old belongings, or starting a side business, tackling your budget from this perspective can also help. You can bring in the income side of your budget as well, rather than just accepting that your paycheck is your only source of income.

Don’t accept that you just can’t budget. The trick is looking at your money as a resource. Figure out how to use that resource to enhance your life, and a spending plan you can get behind is likely to follow.

Miranda Marquit is a freelance journalist specializing in topics related to personal finance, investing, and entrepreneurship. She writes regularly for a number of web sites, including AllBusiness, Huffington Post, and Wise Bread. Miranda’s work has been published at U.S. News & World Report, MSN Money, Fox Business, and Business Insider. Her work has been linked to from USA Today, the Washington Post, and the Wall Street Journal, and she has appeared on NPR Morning Edition and American Public Media’s Marketplace