Discover the Art of Creating a Realistic Budget Plan and Adhering to It!

The current economic conditions have made things financially difficult for people across the United States. Not only are basic necessities so much more expensive, but the global supply chain shortages are making some items downright inaccessible.

Because of this recession, many people have been forced to create stricter budgets in order to sustain themselves. If you plan to make a budget, it is important to avoid common issues that can result in significant losses. For example, you can lose plenty of cash when you don’t efficiently factor in debts like title loan payments and mortgages into your budget.

If you overestimate your income, you can end up spending more money than you earn and dwindle your savings simultaneously. Additionally, if you don’t limit your spending while budgeting, you won’t have enough money to cover your urgent expenses.

If this is your first time creating a budget, you may be worried about being a victim to these problems. However, a practical plan can steer you in the right direction and help you save money for the future! Continue reading to learn more about creating a realistic budget and sticking to it after you’ve started:

How Can I Make a Realistic Budget and Stick to It?

Creating a realistic budget plan can sound intimidating. But in reality, making a budget can be simple if you have a guideline to follow.

Check out these five basic steps to help you create a budget that is easy to adhere to:

Calculate Your Income

Before you start saving for a budget, it is important to determine how much you make each month. To calculate your income, you must establish your net income and sum up any extra cash you make on the side.

If you work a part-time or full-time job, your paycheck typically has your net income, so you don’t have to do anything to find it. However, if you’re self-employed, you must subtract the estimated taxes from your income amount to determine the total you make every month-don’t forget to do this! Set aside extra money for your taxes.

Be aware that it’s important to calculate your net income solely instead of your total salary to avoid the issue of overspending. Additionally, excluding other sources of income through side hustles or freelancing can result in a miscalculation of how much money is available in your budget.

List Your Monthly Expenses

After calculating your income, you must create a list of all your monthly expenses. It is crucial to start with your fixed expenses first, like your rent, loan payments, and groceries, and add any other important irregular expenses like insurance premiums, school supplies, and medical bills.

Once you’ve listed your necessities, you will need to add your variable costs, including entertainment, dining out, and other fun expenses. Don’t forget to list significant payments you’re saving money for and write down any savings accounts you have.

The purpose of having an expense list is to know how much you’re spending and how to control it. While variable costs are difficult to measure, you can control that category by limiting frivolous spending. If you focus more on your fixed payments, you will have more money towards your essentials and slowly grow your budget.

Establish Practical Financial Goals

Creating an expense list can motivate you to manage your spending and stick to your budget. However, having clear goals of where you want to put your money can enhance your motivation even further!

In order to establish financial goals, you must have realistic expectations of your short-term and long-term objectives. Some examples of short-term goals include setting up an emergency fund, contributing to your retirement savings, or saving money for a home renovation.

However, if you plan to repay a $5,000 credit card with a minimum payment of $133 a month, it might take up to 277 months to pay off your debt. That, in turn, becomes a long-term objective, similar to goals like building up credit, paying for a major vacation, or saving money for a down payment.

It’s worth noting that financial goals can change over time. What was once a long-term goal, like paying off credit card debt, can evolve into a short-term one if you pay more than the minimum amount. If you’re saving for a vacation, you can limit your spending and get closer to your objective than before. Make sure you’re aware of these changes and adjust your budget accordingly.

Track Your Spending

Keeping track of your spending is pivotal in staying on your budget. Fortunately, there are several options available that can help you monitor your spending. You can take the traditional route of writing down your expenses every time you make a purchase.

If you want a simpler and time-efficient approach, you can use budgeting apps that categorize your expenses and track your spending in real time. A similar method exists through online spreadsheets, but you must list your expenses manually. However, you can customize your categories through that technique and let the software calculate your spending.

No matter which method you choose, it is essential to track all of your expenses. If you want more ideas on recording your spending, don’t hesitate to contact a financial planner for some advice.

Choose the Right Budget Method

The final step in creating a realistic budget is to find an approach to managing your money. You may have heard about some of these methods, but it’s good to summarize them to get an idea of what you can do.

A popular budget plan many people use is the 50/30/20 rule that suggests you put 50% of your income into wants, 30% into needs, and 20% into savings. The envelope system that lets you plan for a month’s expenses and create different categories (or envelopes) for the things you know you’ll spend.

However, if you want an irregular approach, consider using the “Pay Yourself First” method, where you’ll put a specific amount of cash into your savings and use the rest for bills and anything else.

Do any of these budget plans work for you? If not, you can research different techniques online and find one that matches your needs. What’s important is that you pick an effective method that lets you save money and adhere to it throughout your adult life.

How Can I Stick to My Budget Plan Moving Forward?

Having a budget plan means nothing if you don’t stick with your plan. While it’s easy to lose motivation, you must find different strategies to keep you on top of your budget.

Take a look at some suggestions you can use to focus on your budget and stick to it in the long run:

  • Make Yourself Accountable By Having Support from Your Friends and Family
  • Check Your Budget Before Spending
  • Plan Your Meals for the Week
  • Take 15 Minutes Every Week to Look at Your Statements
  • Set Up Automatic Transfers from Your Paycheck to Your Savings Account
  • Limit Big Purchases

Conclusion – Sticking to a Realistic Budget Depends on You

Becoming a frugal person is easy when you follow a budgeting plan. However, it’s important to set realistic goals to avoid any financial issues in the future. If you adhere to your plans at all times, you can track your spending and save money for essential expenses!

Remember to implement different strategies to help you stick with your budget. If you need external aid, you can always contact a financial advisor to find other solutions. Just research several professionals online until you pick the one that’s right for you.

Ethan Lee

Ethan Lee, an MBA graduate from Harvard Business School, has over two decades of experience in finance and real estate. He joined our platform as a freelancer in 2021, bringing wealth of knowledge from his time as a financial analyst and real estate consultant. Ethan's insights into market trends and investment strategies are invaluable to our readers. Ethan's articles provide in-depth analysis and practical advice, reflecting his deep understanding of the financial world. His hobbies include golfing and volunteering for financial literacy programs for youths.

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