How To Create A Budget That Works

It’s not hard to create a budget or allocate particular sums of money to various things.

What is hard is subsequently tracking spending. Very few people have the discipline to write down all their expenditures or enter purchases into financial software every week.  But if you don’t track what you spend, you won’t know if you’re achieving your spending goals.

There is a solution to this dilemma: simplify the process. Instead of tracking every single expense, monitor your budget busters. You know what they are. Perhaps you go a little overboard at the farmer’s market and fill your basket with chard and lettuce that ends up brown and shriveled in the crisper. Or, you find it impossible to browse a bookstore or Amazon without stocking up on the latest bestsellers, or at last count you owned 25 pairs of jeans. The things we overspend on are as individual as we are. Identifying the culprits is the first step to successfully staying within a budget.

Keep It Simple

The process is simple. Make a list of your budget busters. Tackle one at a time or if you are extra motivated and organized, all at once. (Most people have two or three budget busters). Then employ one of the following techniques  to keep track of your spending:

  • The envelope system: place the monthly budgeted amount into an envelope in cash. When the cash runs out, stop spending until the next month when you will refresh the cash. Extra bonus: your monthly credit card balances will drop. To learn more about the envelope system, watch this video.
  • Some people don’t like to carry cash around for fear of loss or theft. And of course there are those airline miles to accrue! In that case, write down your budget busters on a piece of paper that you post somewhere visible such as on your fridge or near your workstation. After each purchase, subtract what you spent from your budget. When you have spent your allotment, stop spending until the next month.
  • You gave up your day timer years ago and you don’t carry pens.  Boot up your favorite financial tracking or document software and enter your purchases right after the cash register stops ringing. As in #1 and #2, when you reach your limit, stop spending until the next month.

Try this tracking system for a few months and see how it works for you. I think you’ll find that it’s an excellent behavior modification tool. You’ll become more aware of spending habits that aren’t in your best interest. It can be difficult to stay within budget at first, but don’t give up, it takes time to break any habit. The point if that by focusing on your trouble spots your are more likely to stay within budget overall and reach your most important financial goals.

About the author

Cathy Curtis, CFP®

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