How to Make a Budget That *Actually* Works for You

anaging money is one of the biggest milestones of adulthood. Ensuring you have enough money in the bank for all your adulting responsibilities is a necessity, but it’s more complicated than simply not spending money. A good budget will make sure you can pay the bills and buy groceries, but an even greater budget will also keep in consideration the spending money you need to lead an exciting life. How do you keep within a budget, and is it ever okay to break your budget?

We'll be covering everything you need to know about making and breaking budgets, including:

• How to make a budget
• When breaking the budget is okay
• How to keep to the budget

Let’s Make a Budget Plan

You can’t break what you don’t have. First up, what’s a budget and how do you make one for yourself? Budgeting is going to help you accomplish your financial goals. Managing your spending will make sure you have enough money to fulfill responsibilities, and enough left over to have fun. Your budget will be individual to you, depending on your income and various spending responsibilities. What do your bills look like? How much groceries do you need to buy every week? Making a budget plan is going to involve sitting down and evaluating your current financial situation, and being willing to follow through.

Step 1: Evaluate Your Expenses

The budget’s whole purpose is to fulfill your expenses without stress. However you can’t plan without determining how big the bill is. Accumulate all the expenses of your rent, groceries, gas, other needs, and indulged wants you have in a month. Some expenses may not have a consistent number each month, which is why it’s important for budgeting to give these expenses a little cushion. Round the expense up, not down. That way you don’t find yourself planning on a budget that’s bigger than you intended; even better, you may find yourself with extra money in the end.

The best approach to accounting all expenses is to collect all of your previous receipts and bank statements from at least the last six months. Add up all the expenses and divide by the amount of months it took to spend it. The resulting number is your average monthly expenses. You may want to add an extra 10 or 15 percent to this number to cover unexpected bills such as car repair.

Step 2: Evaluate Your Income

You know how much you’re spending, but how much money do you actually have at your disposal each month? This isn’t just about determining your monthly salary. You can add to your monthly salary other sources of income you may have, such  as cash gifts or the small money you make through side tasks such as selling items on the internet. Every bit of it counts towards your budget.

Step 3: Determine what Needs to Be Cut

It’s time to compare the numbers. How does your monthly income look when put next to your expenses? By subtracting your expenses from your income, you can answer the question: is there a budget shortfall or overage? The best you could hope for is getting a result in the positives -- that means you have money to spare. All is not lost if you find yourself in the negatives. This is the time for cutting back on expenses.

The goal is to have 10 to 20 percent of your income left over after each month that can be moved to savings. Take a closer look at what you’re spending money on, and categorize between needs and luxuries. Some bills are uncompromisable and have to stay, which means you need to find flexibility in other expenses. There are many things we want to spend on, but they simply don’t work with the budget. These are the things we have to let go, but not without compromise. You may just need to be a bit creative. For example, invest in a transportable mug and make tea at home, instead of buying a $5 cup of it at the cafe every morning. The savings will add up.  

If after all the cutting you can manage, you still are spending too much, it may be time to look at other ways to make more income to accommodate a lifestyle you currently can’t afford. Going further into debt is a hole that just gets deeper, and it’s best to find a way out before it gets too deep to climb out of.  

Step 4: Record Where the Money Is

At this point you should have a number for every expense you have: that number being the monthly limit that you’re not allowed to go over. To make sure you keep to those numbers, it’s time to crack open a notebook and record your spending and income. Writing it down will keep you more aware of where you stand with your budget, and helps you visualize the money left in the bank. It also makes you think twice about splurging on something you can’t afford, and having that shame permanently recorded. Recording income and expenses is good practice for being aware of money, especially for those who are new to a budget.

Is It Ever Okay to Break the Budget?

Sometimes you slip outside of your budget, or an unexpected financial responsibility has thrown you (and your budget) off guard. Of course it’s okay to break the budget when circumstances require it. We can’t plan for everything, and the budget will make it easier to deal with unexpected expenses. However, if breaking a budget is because of a bad spending habit, this is less acceptable, as you grow more comfortable with a habit that will drive you further into debt. Either way it’s important to find a way to quickly get back on track, or adjust your budget so you can keep your head above water.

Stay True to the Budget

Many adults struggle with keeping within their budget because of a spending habit. Luckily there are several tricks you can use to break the habit, not the budget.

Use Cash

Carrying only cash means you have a limit for spending, which is perfect for budget keeping. If you always spend above the budget when you go out, it may be time to force restraint. Cash is that restraint, as the money in your pocket is the only option you have. If your grocery budget is $80, pull out $80 from an ATM and go to the store with just that money. (Do not bring your debit or credit card -- that defeats the purpose!) See what choices you have to leave out of the cart to meet your budget. This practice will teach you to prioritize items and buy discounted options, and the cash-only technique won’t be necessary for long.

Make a Shopping List

Planning out what you’re going to buy will give you a guide that you’re determined to stick to. Follow the list as best you can. If you see items you don’t need but want, resist for now and put the item on the next shopping list.

Give Yourself Spending Money

Hopefully your budget will function well enough that you have a category for spending. Not everything has to go to savings; you should have money for every month to go see a movie, ride a ferry, or eat out. Budgeting this part of spending as well, so that entertainment doesn’t give you trouble affording responsibilities. It’s nice to have money you can spend guilt-free!

Help From a Friend

It’s natural for others to be better at managing spending, and more times than not, they'll be happy to help you out. You can get tips that they’ve learned along the way. They can be your shopping buddy that keeps you honest to your shopping list and talks you away from unaffordable wants.

Get Inspired By a Long-Term Goal

Sometimes the greatest motivation for saving is having an idea in mind for what you want to spend that money on. Make a long-term goal on what this budgeting will allow you to afford: perhaps a trip abroad, or a concert ticket, or you can finally afford the new smartphone. It’s helps to give yourself a reason for doing all this strict budgeting, and everything suddenly feels worth the hassle.

Budgeting will not solve your problems overnight. It’s a habit that has to be practiced everyday to see rewarding results. But with practice comes ease. In a few months you’ll forget what it was like to be an extravagant spender, or how it felt to be worried about paying the bills!