How to Make a Budget That Actually Works!

Joseph Meyer
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11 Steps For Staying On Track With Your Budget

Do you struggle with creating a budget that works and sticking to it? There are plenty of reasons people don’t follow budgets:

The number of things you need to track is enormous.

You underestimate how much money you’ll need to save.

You’re always reacting to the rising cost of living.

You don’t have the time or mental space to stay on top of it.

You don’t have a system in place that keeps you accountable.

Because nothing is ever enough to satisfy.

You don’t believe you can budget.

Here are 11 ways to get on top of your budget.

{1}. Know and understand your goals. Do you really need the car you’re trying to save up for? Is it something you really want, or just a distraction from what you really want?
{2}. Make a breakdown of your expenses. There’re tons of free apps that make it easy to do. Right now, you won’t know how much you need of each category, but with practice, you will.

Know what you have right now

Review Your Spending and Income

Your first order of business is to track how you are spending money. When you review your spending and income, you get a good idea of how much money you have left over after meeting your obligations and making your essential purchases. For some people, this might sound like unnecessary work, but the payoff is worth it. Some examples of tracking your spending include:

  • Shopping
  • When you went shopping last time, did you know what you went there for? I bet you bought more than you needed or had intended to buy, just because it was so easy to get carried away!

Make a list of what you want to buy before you head out.

If you are shopping online, create your list in the online shopping website so that you don’t forget about it … and spend more than you should!

Eating Out

Eating out is easy and convenient. But did you know that it can cost you A LOT a month? Take note of how much you spend on food away from home.

It can come as a surprise when you realize that you spend a big chunk of your income on food alone.


Meetings are inevitable. Make sure you are not wasting time or effort, or the company’s money in unnecessary meetings. Be realistic and deliberate about the purpose and importance of each meeting.

Identify Your Needs and Financial Goals

Before you go charging into your budget and spending plan, you should really do your homework and discover your financial needs and goals.

What are your goals? How much money do you need for each expense? What’s your income?

When your finances are a mess (which it certainly would be if you don’t figure out some answers!), you need to figure out what needs to go into your agenda. And, this way when you sit down to make your budget, you’re considering everything. If you aren’t, you can easily overlook things like groceries and gas for your car, which add up easily.

Don’t just skim over this part, because it’s absolutely necessary.

Start From the Top

Most of us are familiar with the budgeting paradox.

You probably know how difficult it is to stick to your budget when we discover the price tag on something nice you want to buy.

You then try reduce spending on your essential expenses such as groceries and gas, making it even harder to stick with your budget.

Here is where the budgeting exercise sometimes backfires and we can end up with total chaos rather than order.

That is why we are suggesting that you start from the top of your budget, not the bottom.

Which means that instead of starting with the items that are inexpensive that you can cut from your spending, you start with the items that are the most expensive. Instead of reducing, in some cases you will actually have to increase your spending on these items.

This can be tricky as you might initially think you cannot do this, but if you are determined to change your spending habits and truly come up with a budget that works for you, this is what you need to do.

Add up all your expenses, include your mortgage, bills, healthcare, etc. until you reach the total you have left over for your discretionary spending.

What you have left over after your non-discretionary spending make up the number and adjust your discretionary spending until you hit that number.

Make Changes

First, you want to plan for and write down your new goals and plan. Then, look over your budget for this month. If you feel like things should be different (or you just want a fresh look at your budget, you can make the changes now or wait until you’ve finished creating your plan and goals.

Next, you need to go through each category and figure out how you want to spend your money.

If it seems like the average of each category isn’t going to get you where you need to be, you’ll want to make changes. You can either decrease spending by finding something else to cut or increasing income by finding something else to do.

Next, if you’re only wanting to make minor changes and don’t want to touch income or cutting spending, then make the changes to the average of each category. If you find that most categories are going to give you somewhere you need to be, then you can leave the averages as is.

Go Automatic

First thing’s first: before you can even begin your budget, you have to have a savings account that you’re not dipping into. Treat this savings account like a sacred piggy bank that exists for one and one thing only: retirement.

One of the biggest obstacles that people face when setting up a budget is sticking to it. This is where the idea of an automatic savings plan comes into play. Saving money should really be an automatic thing, as our lives are too unpredictable to try to rely on willpower alone. When I was single and living paycheck to paycheck, I was more than capable of buying things I didn’t need with the money I had to spend on rent, groceries, and utilities. The minute I was transferred to a place where I had more money to spend, though, temptation hit me. I didn’t have that luxury. And when I got married and had a kid, that luxury left altogether.

Stick with it (and what to do if you’re not)

Budgeting is not a new concept. Since the dawn of financial records, people have been keeping some form of budget to hold themselves accountable.

The issue is that most people set budgets and never see them through to completion. Most budgets are thrown quickly together with little thought, but they’re an easy way to track your spending pattern and give you a chance to adjust.

If you aren’t following a budget, it’s very easy to get into the bad spending habits that lead to broken budgets and stretched finances.

You might be asking, “Why doesn’t my budget work?” Well, most likely, your budget contains too many unusual expenses and not enough fixed expenses. Remember, flexible expenses should be about 20% and should include your things like birthday gifts, Christmas gifts, dining out and car maintenance (with the exception of your insurance payment). Fixed expenses should total 80% or more. These will include your cell phone bill, rent, utilities, credit card and car payments, insurance, monthly savings contributions and retirement contributions. Not set up right and it’s easy to see how your finances could go pear shaped in no time.

Build an emergency fund

Don’t forget annual or semi-annuals

Though it’s wonderful to plan for some great vacation or dreamy reward, don’t forget planning for annual or semi-annual payments.

As the year wears on, your annuals and semi-annuals tend to get lost in the mix. You can refer to the calendar page of your budget binder, or your digital budget app, and use the reminders and due dates to set aside some money each month for these expenses.

An easy way to make it a habit is to take a look at the past few years and consider what you spent on annuals and semi-annuals. This year, set aside $XXX per month based on historical data.

This will make it much less likely that you’ll forget about these expenses when they come due.

Learn the power of No

How many times have you tried to be productive, but when it comes time to plan your day, you lose focus? How many times have you booked a lunch with a friend that you had to cancel because of work?

It is impossible to get anything done without some kind of internal focus.

Most of us know what it’s like to set a goal, but get distracted with a million other things and never actually achieve them. When you don’t have a clear sense of your priorities, it’s hard to know which tasks are important and which are unimportant. In the end, we waste a lot of time on things that don’t really matter.

The first thing to do is to stop being so busy doing things that don’t matter. A powerful way to do this is to set an “intense time” (e.g. Weekday mornings between 9 and 11 AM).

Allow some fun money

It’s easy for us to get carried away with tracking our expenses. We love looking at our spreadsheets and checking off everything we buy. It gives us a tiny bit of pleasure to cross our monthly budgets. Doing this is really satisfying, right? Wrong!

You might think you’re doing yourself a favor by spending hours checking your bank accounts and tracking your expenses manually. But being obsessed with checking where every penny goes is defeating itself. It’s the best way to increase spending and decrease your savings.

Our brains have a funny way of increasing spending. When you check how much you have spent on a particular item, your brain doesn’t tell you, “Oh good, I already spent that money. I shouldn’t spend anything else now.” Instead it says, “You’ve already spent that much? You can probably spend some more.”

It’s the same reason you don’t reach into the same wallet over and over again to pay for things. Our brains want us to keep the limited amount of money in the wallet for emergencies.

Mistakes People Make that Blow Up Their Budget and How to Fix Them

So you want to create a budget. Great! You probably have a good idea of your spending habits and recurring expenses.

Having a budget makes it easy to see where your money’s going. And most importantly, it’ll show you how you can save more money.

There are basically two ways to go about establishing a budget. The first is to start from scratch, making mental notes of every expense you have.

The second approach is to automatically allocate a percentage to certain expenditures, like bills and shopping.

The most important part, though, is sticking to it! Very few people manage to stick to their budget over the long term.

Because there are so many decisions to make, your commitment can easily wane. You might be tempted to skip your spending journal, or you find yourself forgetting some of your purchases.

To keep yourself on the straight and narrow, you need to understand what makes a budget successful.

Your Budget Doesn’t Match Your Personality

You’re not Alone.

Here’s the deal. You’ve looked around at all the different budget examples you could find around the internet. You’ve read and even written a few of them yourself. But they’re all too complex, have too much stuff, and take too long.

You’re a beginner at this budgeting thing, and you’re looking for THE budget that will allow you to start your budgeting journey without too much information, and too much time.

So now you’re probably thinking I’m going to overwhelm you with so much information that you’ll never finish your budget. Well, I would love to, but I’m going to keep it simple so that you get your budget done and usable, asap!

I still want you to feel overwhelmed for a few moments, because in the next post, I’m going to teach you how to simplify your budget once you’ve got it.

You’re a Yo-Yo Budgeter

We’ve all been there. You write a budget, then you start spending and stop budgeting. After a few months, you’re in debt again, and you don’t have any idea where it all went.

It took me years to figure out why my budget was such a mess. The tricks and tips weren’t working for me.

The fix ultimately came from a book I read, Good With Money, by Carrie Snow. It may seem counterintuitive, but she suggested that I… not budget. Instead, she suggested that I implement a few small changes that would make my life much easier.

First, I needed to stay on top of my money with a credit card. I didn’t have to carry around all of my cash, so I actually used it. I could go to Whole Foods or my yoga studio and use my credit card, pay it back in full at the end of the month, and know exactly how much I was spending.

Next, I needed a bank account to hold my savings. I couldn’t see my savings account balance at the ATM, so I had to write checks to pay my bills. This made it easy to tell if I was spending too much.

Your Budget Isn’t Flexible

Now if you’re a hard core financial nerd, then you may find this advice a bit trite, but stick with it because it’s essential if you really want your budget to work.

We’re all different and we don’t all operate in the same way, but I have found that most people who struggle with managing their money are totally inflexible.

When it comes to your goals and your money, your budget isn’t a challenge, not a long string of “no”s, and most definitely not a game. No, a budget is a dream, and it’s designed to help you reach your dreams.

Think of a budget like a path. It’s not the final destination. It doesn’t represent the end. It’s a map that will help you get to your destination. And if you want to get to your dreams, you must go down the right path. The easy way is always the wrong way.

You’re Watching Too Much TV

If you were to ask me, my number one problem when it comes to saving is the TV. I work from home, so when I get off work, I may stay here for 7-8 hours. I’ll get on the computer, start working on another project, and just get really distracted watching TV.

Your Budget Allocates Too Much Money for Some Expenses and Not Enough For Others

A budget is a spending plan that allocates your income toward your most important financial goals such as paying off debt, saving for retirement, investing, and covering living expenses. The key to any spending plan is to identify your spending priorities and allocate your resources accordingly.

Once you know your income and expenses, you have to make an important decision about how best to allocate your money. How do you decide to allocate your resources: which expenses will take priority, which expenses will be kept to a minimum, and which ones should be eliminated completely?

The first step to budgeting is to decide on your priorities. If you have multiple goals, you must decide on a priority order. Then proceed to allocate your money accordingly.

Unfortunately, most people make the mistake of loosening the reins on some of their expenses while tightening up on others. Even if one of your goals is to save more money, for instance, you may fail if you don’t learn to commit to a specific savings plan.

You’re Staying Within Your Budget – By Borrowing to Cover Shortfalls

I’m sure you’ve been there! You have a tight budget and you’re doing everything you can to stay within it, but you end up running a little short each month. So what do you do?

You can only tighten the belt so much “ and before you know it, you’re eating ramen noodles for dinner and sucking on pencils for a sweet. Meanwhile, your credit card debt is increasing. So what’s a budget-conscious person to do?

Enter the perfect solution, the personal credit line! A personal line of credit from your credit card company gives you a limited spending allowance that you can use to instantly cover your credit card purchases until your next pay check.

So how much does this extra money come in handy? Consider yourself lucky if you can cover the bill with a credit card. If you have multiple outstanding credit cards, you might find yourself saying, “Hey, what a good deal! I can use these cards as a personal line of credit with my credit card company!

You Haven’t Budgeted for Contingencies

A lot of the time, your budget will turn out to be right as long as everything goes as planned financially. But what happens when things don’t go as planned? You should prepare for the unexpected.

Here’s what happens if you don’t budget for contingencies: say you’re out of work for a few weeks or your emergency fund isn’t quite large enough to tide you over. Or say that your child gets sick and needs to go to the doctor, but you aren’t prepared to pay the medical bills. You might be dipping into your emergency fund a lot to make ends meet until you find work or until you get a big tax refund.

This also explains why your expenses tend to exceed your income when you make assumptions about your income or expenses that don’t make much sense. For example, if you don’t budget for contingencies and assume that your income is stable, you’ll be riding a roller-coaster of income and expense. When your income decreases or your expenses increase, you’ll find a lot of times you’re under or over your budget.

You’ve Got an “Off-Budget” Category – Or Two

If your budget has certain restrictions, then you can use specific off-budget categories that will allow you to spend money without being tracked or budgeted.

Categories like “Entertainment” or “Pet” expenses can be off-budget as well. This can help you track your spending for those categories without worrying about exceeding your budget. This is why you should make a separate budget for your entertainment or pet fund. A budget for a specific category is also helpful when you want to keep a close eye on a certain expense.

Also, don’t limit yourself to trash and food expenses. If you’ve been saving up for a special trip or vacation, you know that you’re going to want to put as much money into that category as possible. Just plan accordingly – and budget accordingly, and you’re sure to have as much fun and your dollars will go as far as possible.

Not Enough Money Is Going Into Savings

If you’re not sure where your money is going every month or if you’re always spending more than you have, the problem may be that you’re not using a successful budget. Having a household budget is the key to keeping your finances in order and being financially responsible.

A successful budget allows you to set realistic goals, plan for unexpected expenses, and stick to your financial budget while enjoying your life.

In this post, we’ll take a look at budgeting basics and why a budget works. Then, we’ll show you how to develop a budget that really works for you. You can apply our tips to your existing budget or start from scratch.

You Haven’t Budgeted Enough “Blow Off Steam” Money

You’ve created your monthly budget, but you haven’t left any money for yourself.

This is a very common budget mistake … blowing yourself after paying the bills and meeting your obligations to others.


There’s a great deal of satisfaction associated with paying a bill and handing over cash to your immediate creditor. In fact, it’s such a great feeling that if you only budget for the bare necessities, you won’t be able to enjoy this feeling of success or enjoy the extra money. So instead, budget in a set percentage “ say 5% “ of your monthly expenses for yourself. Then, whatever you don’t spend on yourself, you can give to your creditors.

Ideally, these dollars should flow through your checking account and not your savings account, since this cash should be spent and not tucked away. Otherwise, you’ll be tempted to spend it and not include it in your budget. You can use these dollars to buy yourself a CD, purchase a gift, take a short vacation, or whatever you like.

You Have Too Many Costly Hobbies – Or Too Much Blow Off Steam Money

So there you have it: a year’s worth of actionable advice on how to manage your money better. I hope the tools contained within this guide help you improve your financial situation. I know first-hand how challenging that can be, and I’ll even be the first to admit that I’m still figuring it out, too.

What’s up next? Well, the next thing is to start putting that knowledge into action. Take one or two of the ideas in this guide and put them into place. Watch them work for you. When you start to see a positive impact on your finances, you’ll be inspired to do more and to take an even deeper dive into the other strategies. This guide is purposely designed for do-it-yourselfers. There’s no way you could have read this entire thing in one sitting. But it’s okay to start and stop when you need to. Take your time, go at your own pace, and build a strong framework for financial freedom… one step at a time.

You’re Too Easily Distracted

Most people fail at creating a budget because they don’t track every single expense, says Mary Hunt, author of The Cheapskate Next Door. To create a budget that can actually work, says Langone, “You’d have to be Hitler about it.”

But even if you can handle the scrutiny, you’re still throwing your money down the drain every time you “forget” a bill.

There’s not much that’s sustainable about a budget that you have to remind yourself of every single time you use it. What works instead is keeping track of everything that’s going in. “When it comes to budgeting, it’s really the little things. And you want to actually look at the little things,” says Hunt.

You’re Unconsciously Rebelling Against Your Budget

Have you ever tried to create a budget that worked? It’s not easy.

If it was then everybody would do it and most people would be saving more for the future.

In fact, the number one reason why people fail to stick to their budget is due to living unconsciously.

Most people keep creating budgets that automatically generate a lot of pro-spending biases that cause them to break their budget, or to not even get one in the first place.

For example, you may think a home cooked meal is cheaper than eating out. But when you have to buy ingredients instead of picking them up for free, it can easily double in price!

Or you may think that you can become rich if you can build an app and sell it. But with only a total of 25,000 downloads and maybe a few dozen people purchasing your app, you won’t be rich!

When you build a budget that is optimized for your personal situation, you aren’t unconsciously rebelling against it because you’re unwillingly sabotaging your budget.

Your Basic Cost of Living is Higher Than Your Income

It's no secret that you need to have a budget. But the question is, why you don't have one? Most people can't repeal it to lack of knowledge, but that's stupid because there are millions of pages on the web on how to budget.

But let's have a look at the real reasons why you don't have a budget and why you fail to stick to it.

You are a person of the "important" tasks. And you endlessly postpone tasks that aren't.

You don't pay bills, forget about paying taxes, make impulse purchases, and just don't have enough time or strength for organizing all your bills.

You always overestimate your future income. This is how budgets get broken when you spend more than you earn.

There’s a Black Hole in Your Finances

Before you can start filling up the black hole, you’ll need to identify exactly where it is.

The biggest issue with personal finance is that most budgets are too vague to be effective … as opposed to giving you specific, actionable steps you CAN take to combat the problem.

When you make up a budget, you know it should be something to make your finances better. But I doubt you’ve ever gone through the process of making up a budget and thought, “This will surely pay off my credit card debt and replace my 10-year-old car!”

Nope, you most likely imagined the exact opposite; you imagined that budget getting cut in half each month and you chunking more and more money into debt.

Here’s the problem. You’re setting a budget based on what you CAN NOT afford, instead of setting one based on what you CAN afford. Your budget is going to be a lot more positive if it punishes you for spending money on the wrong things and rewards you for sticking to your budget. Let’s look at how you can do that.

The Timing Just Isn’t Right

Why is this so? If you analyze your bank statement and think about your spending habits, the biggest reason will be that you don’t have the right data to make the right decisions.

This is why you need to make a budget. As a simple list or a fancy Excel sheet, a budget helps you stay on track.

As you know, your monthly income is not the same every month. Many people have variable paychecks. Some people are paid weekly. Others receive biweekly paychecks. Still others receive monthly checks, and there are even those lucky few who earn bimonthly checks.

As you go through your records, look at income broken down into the smallest units possible. If you’re a daily budgeter, your focus will be daily. If you’re an extreme budgeter, you may want to break it down to weekly or even monthly (if you get paid monthly).

Next, look at your expenses. Because most people hide their expenses in their bank accounts, you may find that some of your expenses are associated with your account instead of an expense category. The reason you need to organize your expenses in categories is because it’s hard to manage where there’s no structure.

Budgeting – it isn’t all bad


For many people, the word budget is the quintessence of bad news: constriction of spending, cutting of outgoings, denial of what you want, and misery and failure (at best).

Let’s Take a Step Back Here and Look at Budgeting in a Different Way …

Budgeting, like any skill, isn’t bad or even a bad thing!

Budgeting is a framework; a way to look at your money and spending choices…and to how to choose the happy path instead of the pain path.

It’s a way to structure spending and discover areas of overspending, but it is also a way to gain control over your spending. And even if it’s not the method that fits your needs, hopefully you’ll find an alternate or even an additional method that can help you gain more budgeting skills!

Here are some of the more common budgeting strategies that you will see:

  • Zero-sum Budgeting
  • Envelope Budgeting
  • Cash-only Budgeting
  • YNAB …There’s a Better Way
  • The 60% Rule
  • The 80% Rule