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How to Make a Budget that Works

How to Make a Budget that Works 2 Comments
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Learning how to make a budget that works is one of the most important skills that you could ever develop. The power of making a budget is impressive although most people don’t think of it that way.

When making your budget, you take control of your money. You get to decide where it goes. You get to set your priorities. If vacations are a priority, you can put more money toward them. And you can do it by taking that money from an item that is less of a priority.

Keep reading to learn the top 4 reasons personal budgets fail and what you can do to make sure your budget actually works.

#1 You Aren’t Spending on Purpose

Budget every last dollar. You are not finished creating your budget until you assign every single dollar you earn to a category. An easy and smart way to do this is to throw any “leftover” money after you’ve budgeted all your expenses out into your savings.

You could even make a special savings item for shopping, travelling, or whatever you want to spend your money on. This is one of the most important things you can do when figuring out how to make a budget that works for your habits and goals.

When you are out actually spending money, spend with your budget in mind. That doesn’t mean buying anything as long as it’s “within your budget.” That means really thinking “If I buy this now, I won’t be able to buy that later.”

A great example of the power of “spending on purpose” is in grocery shopping. You should actually take the time to sit down and plan out your meals for the week. Then go to the store to buy exactly the amount of ingredients you need to create those meals. If you do this, you will find that you spend way less on food.

That’s because you’re cutting down waste. And you are making sure you don’t stock up your fridge and cupboards with food that is just going to sit there, unused. You can save hundreds of dollars each month just by shopping with a plan.

That saved money could go toward your savings or even just fund a shopping spree! This is one of the powers of budgeting. It lets you save money where you don’t need to spend it. That way, you have more to spend where you actually want to spend it!

#2 You Know How to Make a Budget but You Aren’t Checking In

It’s one thing to write down a plan of how you want to spend your money. It’s another thing to actually use that plan. You need to check in regularly to make sure you are actually staying on track.

And, in the first 2-3 months, these check-ins will also be your chance to determine if the budget you created is realistic. Nobody creates the “perfect budget” all at once. You will need to make some adjustments.

After you have made your first budget, you need to pull out your calendar and schedule a weekly check in. During this check in, sit down and calculate how much you have spent so far and see how you are doing with each item on your budget.

This weekly check in allows you to catch problems before they become disasters. If you notice you’ve been spending a little too much on groceries lately, you will know to be more frugal the next week.

At the end of each month, that check-in will be longer. At your last check in for the month, you will take a look at how you did. Did you spend exactly what you budgeted for each item? Where did you spend more? Where did you spend less?

With this information about the month you just went through, you can create your budget for the next month. Remember to take into account any special expenses for the upcoming month (birthday gift shopping, hair appointments, etc).

#3 You Don’t Have a Reward/Punishment System in Place

Most of the time, people will have an idea of how to make a budget but then provide no source of motivation to actually stick to it. Their budget is basically just a nice idea if it would work rather than actual plan they will follow through on.

One easy way to “punish” overspending is to simply make overspending the punishment. Withdraw the money you have actually budgeted for the month and divide it into separate envelopes (or money clips). Label each one with what the money is for.

how to make a budget money envelope

When you go out to a restaurant, pay for the meal using money from the appropriate envelope. When the money’s gone, you can’t go out to a restaurant again until next month. If you’ve used up your whole restaurant budget in the first week, that means you’ll have to eat in for the remaining 3 weeks. If you are more careful, you’ll be able to go out more often.

Statistics prove that you actually spend less when you have to hand over actual real cash compared to when you just have to swipe your card. In fact, you spend as much as 18% more when you pay with a card versus when you pay with physical cash. Imagine having that extra 18% to work with in your budget!

#4 You Don’t Actually Know What You Want Your Budget to Do

Your budget is not just a spreadsheet with dollar amounts scattered through it. It is a plan. And learning how to make a budget without having a goal is like trying to map a route without a destination. You don’t know which way to go because you don’t know where you’re trying to get to.

And if you’re thinking “I want a budget so I can control where my money is going” that’s not enough. Start thinking about your money like a tool. What do you want this tool to do? Are you trying to save for retirement? Do you want to get out of debt? Have you always dreamt of spending a year travelling the world? Do you want to buy a new car?

Use your monthly budgeting sessions to dream. Dream about the future that you want. And then figure out how to make a budget that will make that happen. When you actually have a goal and purpose driving your budget, you will be much more motivated to stick to it because you know exactly what the payoff will be for doing it.

When you learning how to make a budget for the very first time, you’re going to need to spend some time first assessing how much money you have coming in and where it is going out. Go over all of your records and write down exactly how much you are making and spending right now with no budget.

You can use a worksheet like this one to help you make a complete map of your current spending habits. Once you have that, it will be easier to tweak and adjust so that you can make a realistic budget that you are not only able to follow but that will allow you to accomplish all that you want to accomplish!


  1. Michael Welter says:

    We may have a lot of options in making our financial and funds management work; but, it will only be us who will determine all these plans become a success. Act on it, make it a habit, and be aware of your spending, at all times.

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