Financial therapy: How to plan a realistic budget and stick to it

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By: Phil Bradford
on 28th Jan,2017

Do you think that planning a budget is stressful? If so, then just rub that thought from your mind. Budgeting isn’t tough and stressful. It’s easy and simple. If you’re confused, check out how how to plan a realistic budget and the tricks to stick to it.

Does the word “budget” send shivers down your spine? Well, it shouldn’t. A realistic budget is like therapy for your finances. Do you know a successful budget can solve half of your financial problems? Yes, that’s right. But, it’s only possible if you follow it strictly.

How will you plan a realistic budget?

Do you know how to design a good and realistic budget? If not, then don’t worry. In today’s post, I’ll discuss the ways to create a flawless budget and will also explain the tips to stick to it.

Okay, now let’s explore the ways to create a successful budget:

1 Just relax!

Don’t make budgeting a daunting task for yourself. Just relax! And, stay calm. If you panic, things will become more complicated, and you won’t be able to make a realistic budget.

Don’t think that your financial condition will change overnight.

It is impractical. Your finances will improve but, it’ll take time. It’s not a rocket science. So, for now, take a deep breath and just relax. Feeling better?

2 Know why you’re planning a budget

Are you making a budget only because someone said it’s good for your finances? Or, are you following the steps written in a financial book because it suggests ways to achieve financial success? If so, then budgeting won’t help you much.

Budgeting helps you to control your finances by making you spend within your limit. So, first, know why you want to plan a budget.

If you follow what others are doing, you can’t design a suitable budget for yourself.

So, instead of imitating others, assess your financial condition and then plan a budget.

3 Calculate your total income

First, you have to calculate how much you earn every month. Consider both your paycheck and extra income, if any. Now, add up all your income sources and calculate your total monthly income.

4 Categorize your expenses

Before you start budgeting divide your expenses into smaller categories like:

  • daily spendings,
  • groceries,
  • shopping,
  • bills and utilities,
  • personal care,
  • miscellaneous expenses,
  • food, and so on.

Apart from the above variable expenses, you must consider some fixed expenses like monthly payments on your mortgage, car loan, insurance, rent, and so on.

5 Start planning your budget

Now that you’ve calculated your total monthly income, start designing your budget. You can use the traditional pen and paper method, or modern methods like spreadsheets, online budgeting, and the budgeting apps.

6 Identify the areas you’re overspending

After listing the categories according to your expenses, look for areas you’re overspending and keep them separate. In short, find out the useless expenses that you’re making for which your finances are suffering.

7 Cut down the unnecessary expenses

After identifying the areas you’re overspending, find out how you can reduce your extra expenditure in those categories. Check out where you can cut down the costs. Eliminate those things which you don’t need right now.

However, you can’t cut down costs from your fixed expenses. So, you must try to adjust it from your variable expenses. For instance, find out how you can reduce your monthly grocery and utility bills.

8 Make the necessary changes in your budget

You must create a fresh budget after cutting down the costs. However, it doesn’t mean that you’ve to starve and fulfill your budgeting goals. You can achieve it by carefully making some alterations in your lifestyle so as to save the desired amount every month.

If you are struggling to plan a budget, don’t hesitate to seek professional help.

These are the steps to create a simple budget. You can also plan a suitable budget in 3 other ways. Check out 4 types of budgeting strategies.

Some important points to remember

Now that you’ve understood how to create a budget, take a look at some vital points that’ll make your budget more effective and efficiently working:

A. Be realistic

Don’t plan a budget that you can’t follow or the one that is too tight. Plan a flexible budget that you can follow with ease. For example, don’t cut down your entertainment cost by 80%, it won’t work in the long run. Instead, look for alternative and cheap source of entertainment, maybe a cricket match at your backyard.

B. Save, save and save!

Budgeting doesn't mean you have to minimize your expenses. Remember, saving is an important part of budgeting. So, set aside the amount you want to save every month and plan your monthly expenses with the remaining amount.

It’s wise if you open a savings account and deposit the extra dollars.

C. Prioritize your debts

Debt is a reason why your finances suffer. If you have debts, then keep an amount separately to pay them off. Open a separate savings account and keep that money in it. Use those dollars to pay off your debts only. Don’t use that money for other expenses.

D. Review your budget

The budget you make isn’t for a lifetime. You need to revisit your budget each month and make changes according to your needs and present financial condition. This way, you’ll be able to balance your expenses and income.

The key is to plan a realistic budget and for that you need to modify it from time to time.

After you’ve planned your budget, you have to find out how you can stick to it. Otherwise, your financial condition will again mess up.

How will you stick to your budget?

Here are some tricks and tips to tightly stick to your budget and save more money:

  1. Never spend more than you earn
  2. Save a certain part of your income
  3. Keep the receipts and bills with you always
  4. Don’t go grocery shopping on an empty stomach
  5. Pack your lunch from home
  6. Stick to your shopping list
  7. Use cash while shopping
  8. Visit Starbucks occasionally
  9. Buy what is necessary
  10. Adjust your budget according to your needs
  11. Look for coupons and rebates to save more
  12. Do comparison shopping
  13. Avoid impulsive purchase
  14. Review your credit card and bank statements regularly
  15. Look for ways to earn extra
  16. Pay the bills on time to avoid falling into debt
  17. Save for emergencies and retirement
  18. Check out where you can cut down the costs
  19. Negotiate the prices before buying
  20. Instead of purchasing books check out the local libraries
  21. Keep the amount separately that you save from your bills
  22. Say no to gym and exercise in fresh air
  23. Take advantage of credit card reward points
  24. Keep a small amount separate for unexpected expenses
  25. Educate yourself so that you can make wise financial decisions

Remember, your ultimate goal is to save money. So, do the things that’ll save your hard-earned dollars.

Budgeting is not stressful. It’s easy and helpful. But, there are few things you need to remember to avoid making your finances unhappy.

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