How to Create a Budget and Stick to it
If you always seem to run out of money a few days before your next paycheck, creating a budget can help you spend your money wisely so you don't have to rely on a credit card or other types of debt. Budgeting helps you be deliberate about where and how you spend money, because you know exactly how much you can afford to spend in each area of your life. To be successful, you need to perform two major steps: creating a budget and implementing the budget.
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Instructions
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Create a Budget
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1
Add up your total monthly take-home pay from all sources. This includes jobs, interest earned and any assistance you receive from the federal government, an ex-spouse or other family members. List this as your income at the top of a sheet of paper, or enter it in an online budgeting worksheet.
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2
List each of your necessary expenses. These are things your family can't live without. They probably include a housing payment, utilities (including phone and basic Internet connection), debt payments, public transportation or gas to get to and from work, a few types of insurance and basic groceries.
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3
Subtract your necessary expenses from your income to find out how much money you have left for discretionary spending.
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Divide your discretionary spending money into categories. For example, you might choose to spend it on eating out, clothes, entertainment, premium cable service, personal care, additional groceries or buying books, movies or household goods. You probably also want to put money in savings -- both to build up an emergency savings fund and to save up for large future purchases, such as holiday gifts or a vacation.
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Double-check your math to ensure the total of all necessary and discretionary spending on your budget does not exceed your income.
Implementing the Budget
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Add up the total amount you plan to spend each month on bills you pay with a check, automatic bank withdrawal or debit card. These might include your housing, utilities, insurance and savings account transfers.
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Subtract the amount of the bills from your total monthly income. For example, if your take-home pay is $3,500 per month and the bills that come out of your checking account total $2,500 per month, you have $1,000 per month left for cash spending
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Label plain envelopes with each of your cash spending categories and the amount you plan to spend each month in each category. For example, you might label one envelope "Groceries - $400" and another "Eating Out - $100."
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Withdraw the total amount of cash spending money from your account at the beginning of each month.
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Distribute the cash between the envelopes according to the amount written on the envelope. You should have exactly enough cash to fill the envelopes with the right amounts.
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Use the cash in each category envelope to spend in that category only. When you run out of money in an envelope, you cannot spend any more in that category until you refill the envelopes at the beginning of the following month.
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Tips & Warnings
There are other ways of implementing a budget, but the envelope system is one of the best ways to ensure you don't overspend, because you see the money and know exactly how much you have left and precisely when it runs out. When you are tracking the money a different way, especially if you spend on credit cards, overspending is easier.
