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A piggy bank being held to symbolize creating a budget.

5 Tips for Creating a Budget You Can Live With

Creating a monthly budget is an essential step in living a frugal lifestyle and for feeling secure in your finances. By not using a budget, you don’t really know where your money is going and how much you are actually spending, which can lead to financial problems down the road. Even if you’ve never budgeted before, it’s not a difficult process, and putting in the effort now will quite literally pay off when you’re trying to clear your credit card bills, reserve funds for retirement, or save up for a new car. 

  1. Figure out where your money goes.
    The first step to figuring out your personal monthly budget is to determine your past spending habits, fixed expenditures, and savings account/retirement needs. Create a list or chart of where your money has to go (mortgage, car payments, groceries), and how much money you have leftover. If you realize that you’ve been spending way too much on eating out, set a lower budget for that category based on your remaining income. 
  2. Keep it as simple as possible.
    The last thing you want to do when setting a personal finance budget is to overwhelm yourself and forget about budgeting altogether. To take some of the workload off of yourself, you can use budget software, like Excel or Quicken, or budget apps, such as Mint.com. Once you figure out which budgeting tools you are going to use, refrain from creating too many specific categories, like “Bowling with Friends.” Try to stick to only a few spending categories, like “Mortgage,” “Utilities,” “Food,” “Personal Care,” “Entertainment,” “Savings,” and “Emergency Funds.”
  3. Set financial goals. 
    Are you and your family trying to save up for a family vacation to Disney world? Or a new speedboat to take out on the lake? If so, you need to factor that goal into your monthly budget. Figure out how much you need to save each month to purchase that item in the future, and regard it as a fixed expense. Having a financial goal in mind can help you keep your resolve to spend less money on trivial things, such as your morning latte, and stick to your budget.
  4. Give yourself a buffer.
    When setting your individual budgets, don’t be too optimistic and say you’re only going to spend $50 a month on eating out. Come on. If you have a family, that probably doesn’t even cover one meal out. You may be thinking, “Yeah, that’s fine; we never go out for dinner!” But remember that grabbing a snack wrap from McDonalds or a Happy Hour drink counts as eating out as well, so make your budgets realistic. It’s better to set a higher budget as a buffer and not spend as much than it is to set a low budget and consistently go over it.
  5. Set aside money for “fun stuff.”
    Setting a budget is only half the battle. Sticking to your budget and getting your family to stick to the budget is the hardest part, so you’ll need to make sure that you leave some room in the budget for fun activities. Set aside at least $100 to treat your family to the movies or mini-golf as a fun, family bonding activity. $100 really isn’t that much in the grand scheme of things, and it’s always better to think about those expenses upfront. You don’t want to be paying your credit card bill and realize that you spent half your grocery budget on concert tickets. You and your loved ones are going to need/want to have a little fun, so always account for that. 
Last Updated: September 04, 2015