How to Make a Budget

February 20, 2024 |read icon 6 min read
A young man reviews his spending habits and receipts as he learns how to make a budget to improve his financial well-being.

Sticking to new goals can be difficult. Many Americans say their goals usually last about two to three months before fizzling out.1 Why not consider new habits that can have a permanent impact on your well-being?

This year, improve your finances by learning how to make a budget. When you understand where you’re spending your money, you can identify areas to make cuts and help you save, such as subscriptions or eating out. This gives you the flexibility to spend money on other things when you know your fixed expenses are covered.

Use these budget tips to help meet your financial goals this year.

Get started with your fixed expenses

Your first step in making a budget is listing all your monthly income. This includes side gigs or other earnings. Once you have this amount calculated, you know how much money is available to spend every month. Your goal with a budget is to make sure you’re not spending more than you’re earning.

Next, list all of your fixed expenses. These are required bills or payments you make every month, such as mortgage or rent, gas, groceries, internet, kids’ schooling, debt payments, etc. Subtract the amount needed for these payments from your monthly income. After you’ve calculated how much you’ll need for fixed expenses, the amount leftover is for discretionary spending, like eating out or shopping.

Some payments will remain the same from month to month, like rent or your phone bill. Consider thinking about your grocery purchases in the same way. A low-cost grocery plan for a family of four costs around $1,055.80/month.2  If you’re looking for ways to cut costs, try budgeting $1,100 a month for your groceries, and any extra dollars could be saved for a family outing.

Prepare for the unexpected

We usually aren’t told when a curveball might be thrown our way, so it’s better to be proactive than reactive. Put a portion of your budget toward savings so you can continue paying your bills if you lose your job or need to make a costly emergency payment.

Also consider paying for a life insurance policy as part of your budget. If you were to pass away unexpectedly, you want to make sure your loved ones are taken care of. Life insurance can offer that protection. Either evaluate how much life insurance you need or set up a policy review using our checklist.

Be flexible

You could say you will give up shopping or drive-thru coffee, but it’s never fun to make an unattainable goal. You know yourself better than anyone else. If you know that a fountain soda is a necessity to get through your workday, don’t deprive yourself of it completely. Not only will you resent having made a budget in the first place, but you’ll also be setting your goals up for failure.

Give into your indulgences by setting limits for yourself without going cold turkey. Make at-home coffee Monday through Thursday and get your go-to drink on Friday or once every other week. It might even make you savor and enjoy your cup of joe more.

Allocating money for our favorites makes life more enjoyable. Go to the movies, visit a local vendor and attend sporting events – just make sure you’re honest with yourself and your budget.

Don’t pay for what you don’t use

January is a great time to re-evaluate streaming services and subscriptions. Lots of these payments are automatically withdrawn from your account every month without your knowledge. Take some time to look through those payments and decide if you’re really using them. If you are, great. If not, cancel your subscription. Who knows, maybe you’ll find you’ve been paying for two of the same services.

Consolidating subscriptions is also something to consider. There are lots of streaming services available. If you have one that already includes live television, it might be time to stop your cable bill.

Give your money the potential to work for you

Consider investing in yourself by putting money into an investment retirement account. Contributing to an IRA can provide another way of adding to your savings while providing tax advantages. Read more about the differences between IRAs to assess what is best for you and your budget. Consult with a financial professional to see if an IRA is right for you.

Quick tips to keep to your monthly budget

1. Order your groceries as drive-up trips instead of going inside to shop. It’ll be easier to add up your expenses and you can look at your fridge while selecting items. Additionally, it may help with buying what you need rather than impulse shopping on an empty stomach.

2. Download apps for your favorite places. If you are a frequenter of any fast-food chain, then odds are you could start accumulating “points” for your meals or have first access to deals. Some fitness apps also reward you just by getting your heart rate up with coupons to nearby restaurants. If going to the gym is a part of your daily routine, add more rewards to your wallet. If you’re looking for another incentive to keep your fitness goals, this could be your reason.

3. Keep your budget handy. Whether you choose to use your notes app or create an elaborate excel document, keep it on your phone and make adding to it a habit of yours.

4. Log every receipt right away. Take a picture if you’re with friends or make it your first task once getting back in your car.

Sticking to new goals can be hard. Create habits now that will have tangible results on your financial well-being for years to come.

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Sources and References:
1 Forbes
2 US News

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