Finally: Here’s How to Create a Budget You Can Really, Truly Stick To

Making—and sticking to—a budget may feel outdated and dowdy, but learning how to budget is one of the most important things you can do for your financial future and overall financial wellness. Creating an emergency fund protects you from unexpected expenses; creating a budget protects you from overspending, and can even help you stay out of debt (or pay down your debt in a timely manner) and make progress toward achieving your financial goals.

Still, learning how to budget doesn’t have to mean using the envelope method or spending lists your parents may have used.

“The word ‘budget,’ just like the word ‘diet,’ may make us cringe a bit,” says Brittney Castro, CFP at Mint. “These terms do feel outdated, but the basic concepts still hold true. You can’t lose weight if you don’t eat fewer calories than you burn, and you can’t get ahead financially if you don’t spend less money than you earn. That said, unlike dieting, budgeting isn’t ‘one size fits all’ and restrictive.”

There’s a budgeting system out there for everyone, even if you don’t refer to it as a budget, and whether you’re expecting to retire soon, mapping out your financial future as a young professional, or figuring out the best way to manage after a job or income loss because of the coronavirus crisis, learning how to make a budget you can stick to now can and will pay off (literally) later.

Still not convinced? There’s a reason governments and businesses operate with strict budgets.

“Budgeting might feel like a dated concept to some, but the reality is, good money skills are timeless,” says Craig Bolanos, a financial advisor and founder and CEO of Wealth Management Group, a financial advising firm based in Chicago. “Your biggest wealth-building tool is going to be your income, and the best and most certain way to unlock your savings potential is to create a budget so that you can start telling your money where to go instead of wondering where it went.”

A budget can set you on a path to achieving your financial goals; it can also keep you from going into debt and help you eliminate unhealthy spending habits. Beyond the time it takes to make a budget and the discipline it takes to stick to one, it’s a no-cost, high-reward endeavor.

First, ignore what your parents, friends, roommates, coworkers, and everyone else has told you about how they budget their money. What works for them may not work for you.

“Finding the approach to budgeting that works for you is the most important thing,” says Brian Walsh, a certified financial planner at SoFi. “There isn’t a once-size-fits-all approach that works.”

Instead, start by taking your own goals and financial situation into account.

“Set a goal for your finances,” says Ken Lin, founder and CEO of Credit Karma. “Ask yourself what you’re hoping to do with your money in the short- and long-term. Do you want to buy a house one day? Are you working toward paying off student loans?”

Keeping your goal in mind—whether it’s to max out your 401k or pay down debt—will help determine how you budget your money. If you’re determined to pay down high-interest debt quickly, you’ll likely need to allocate more money for savings and less for nonessentials. If you have a long-term plan to save for a down payment on a house, you can funnel the money you save into a high-interest savings account or investment account instead of a retirement account.

What’s important is that your budget ties in with your financial goals: You’ll be more likely to stick to your budget if you know doing so makes your goals more achievable, and reaching your goals will be easier with a budget that supports them.

Once you have a goal in mind, take stock of your income. List all the money you bring in monthly from your salary, side-gigs, investment returns, and any other reliable sources. (Be sure you’re using take-home pay, not pre-tax or gross income.) Once you know how much you’re bringing in, you can calculate how much you can afford to spend while still saving money or paying down debt. Most payroll schedules and bills revolve on a monthly basis, so a monthly budget is common, but if you find a weekly or bi-weekly budget works better for your payment and bill schedules, calculate everything based on those time frames.

Once you know how much you’re bringing in, it’s time for the hard part of making a budget: calculating how much you can afford to spend.

Fortunately, it doesn’t have to be daunting. There are many different strategies you can use, depending on what works best for you, your lifestyle, and your spending habits.

Break it down by category

The most conventional concept of budgeting is having a category-by-category breakdown of spending limits. You can use a spreadsheet, a tracking app, or basic pen and paper for this option, but be warned: It will likely only be functional for detail-oriented types who have consistent spending habits and who are disciplined enough to stick to the prescribed spending accounts for each category.

If this method sounds like it might work for you, make your budget by analyzing the last few months of spending. Print out your credit card and bank statements and categorize every single charge or withdrawal. Once you can see how much you spent in each category—groceries, shopping, entertainment, eating out—you can calculate how much is reasonable to spend each month and set a limit for yourself. Calculate essential categories such as rent or mortgage payments, insurance payments, groceries, and utilities first: These rarely change much from month to month, and they’re not optional, so you’ll have to pay these bills no matter what.

Subtract the total amount budgeted for spending from your income; the remaining balance is what you save each month. If it doesn’t seem like you’re saving enough, adjust your limits in each nonessential or non-fixed category until the amount of money you save or put toward paying down debt is large enough. (Many experts recommend putting 15 to 20 percent of your income toward savings and debt repayment.) Pay close attention to how much you’re budgeting for meals, entertainment, travel, and leisure, all categories where Bolanos says many people get in trouble and overspend. More often than not, you’ll be able to shave a few more dollars off your budget for each category.

Try the 50/30/20 method

Category-by-category is one of the most restrictive methods of budgeting; fortunately, there are other methods for those hoping to avoid difficult-to-stick-to restrictions and limits, such as the hugely popular 50/30/20 method.

“We find the 50/30/20 budgeting method really useful because it leaves room for savings, debt payments, and also wants—you don’t have to deny yourself everything,” says Kimberly Palmer, a personal finance expert at NerdWallet.

With the 50/30/20 method, 50 percent of your take-home pay goes toward needs (those essential costs of living), 30 percent goes toward wants, and 20 percent goes toward savings and debt payments, Palmer says. (If math isn’t your strong suit, NerdWallet has an easy-to-use 50/30/20 budget calculator that breaks down how much you can dedicate to each category based on your take-home pay.)

The appeal of the 50/30/20 method is that it breaks your spending down into just three categories, as opposed to the many categories you might have with the more detailed budgeting method. Instead of trying to remember that you can only spend $100 on clothes in a given month, with the 50/30/20 method, you just have to fit your clothes spending into your 30 percent allocated for nonessential spending. If you overspend on clothes, you can cut back in another area—like eating out—to stay under your spending limit for that category. Even this small amount of flexibility can make your budget feel less restrictive and allow for seasonal shifts in spending.

Trust the 80/20 method

If even the 50/30/20 budgeting breakdown feels too restrictive—or unattainable, particularly if you live in a city with a high cost of living—Walsh suggests the 80/20 method, which simplifies the 50/30/20 method even further.

“Most people want to take things at a high level,” he says, with an overall spending target or limit. “For most people, it’s just, ‘How much money do I have to spend?’”

Keeping track of just one number—that 80 percent of your take-home pay—is inarguably easier than keeping track of more numbers. The challenging part is to maintain balance within that number and ensure that your spending in different categories doesn’t add up too quickly. Preserve the 20 percent you’ve committed to saving or using to pay down debt by setting up an automatic transfer from every paycheck. After that money is transferred to a specified savings or debt-repayment account, whatever’s left is what you’re able to spend.

If even these simplified budgeting methods seem too overwhelming, consider working with a financial planner to find a system what will work for you. And don’t be hesitant to take the simplest route.

“A budget doesn’t have to be complicated,” Lin says. “You have control over how your budget is structured. The key is to set realistic parameters for your money so you don’t spend money you don’t have.”

So you’ve made your budget: Actually following it is another challenge entirely, especially because budgeting only truly works over the long-term. Sticking to a budget for a month or two might put a little extra money in your savings account, but you won’t accumulate a true savings cushion (or put a significant dent in your debt) until you’re able to stick to a budget for at least a year.

You’re not on your own here. There are a ton of different tools and systems for keeping track of your spending, but it’s up to you to be accountable: You have to record every dollar you spend (or sign up for an app that will do that for you) and keep an eye on your spending. When the number gets close to your limit for the month, promise yourself you’ll reign in your spending.

Record everything

If you’re old-school and a hands-on type, try a basic spreadsheet, pen-and-paper list, or running list of expenditures to track your spending. To avoid being tethered to something that lives on your computer or in a notebook you leave at home, you can also download a no-frills tracking app; Spending Tracker by MH Riley Ltd is free and easy to use. This method requires diligent recording after every transaction (or at the end of every day or week), so it’s definitely not for everyone, but people who like keeping a close eye on their spending will appreciate the accountability of recording every transaction.

Use a budgeting app

For those who don’t want that kind of responsibility (or who want a more hands-off approach), there are a ton of budgeting apps out there to track your spending. Some will help you establish a budget; most can be connected directly to your bank and credit card accounts, so they track every expenditure for you. (They can even send you an alert when you’re getting close to your limit.)

“I love using online tools such as Mint because they automate the tracking process by connecting to your accounts, pulling in your spending transactions, and categorizing them for you,” Castro says. “Do some online research to find a system that works for you.”

Mint, You Need a Budget, and Acorns are all popular options, each with slightly different features. Research one that offers everything you want and need, and be aware of any fees: Some charge a fee to download, while others charge a monthly or transaction fee. Free apps are also available but may not offer the same features.

Establish a spending account

Another popular option is to dedicate a checking account to spending. Keep 80 percent of your take-home pay—or however much you’re allowed to spend in a given time period—in that account at the beginning of every budgeting period. With this method, you’re allowed to spend whatever is in the account, but once it hits zero, you’re done spending until your next budgeting period begins. If you just want to know how much you’re allowed to spend and want to be able to see how much you have left at a glance, this is a great option. Just be sure to understand any banking fees that may be associated with a low account balance—in most cases, using your debit card a prescribed number of times or having a reoccurring direct deposit of a certain size will eliminate those fees, but check with your bank first.

Use the envelope method

If you want to be more detail-oriented in your spending and budgeting (and you’re very old school), try the envelope method. Dedicate an envelope (or checking account, or bucket within a checking account) to each category in your budget. Fill that envelope or account with the appropriate amount of cash at the beginning of your budgeting period. Once the envelope or account is empty, you’re done spending in that category. (This system is also sometimes called zero-based budgeting, in which your balance equals zero at the end of every month or budgeting period.)

If you’ve never stuck to a budget before, don’t expect to get the hang of it after the first month, or even a few months. Walsh says most savers should try to move incrementally toward meeting their spending limits and savings goals; saving even a few extra dollars each month is progress.

You’ve made a budget, you’ve taken steps to ensure you follow it—but that doesn’t mean you’re done forever. Income and expenses both shift, and falling prey to lifestyle creep can completely derail your savings and budgeting efforts.

Commit to checking in on your budget every few months. Are you staying within your spending limits? Are there places where you can cut back more, or do you need to adjust a little so your budget is easier to stick to? Be honest with yourself and make shifts as needed.

If you’ve had a major life change—a promotion with a pay raise, for example, or you’ve moved or gotten married—it may be time to reassess your budget completely to accommodate new income or necessary expenses. Budgets are meant to shift, but maintaining one—even a loose one—will move you closer to your financial goals with every penny you save.

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