How Do You Create a Realistic Budget and Stick to It?

10 years ago

Budget. It almost feels like a four letter word. It makes people fidget and feel like they are going to suddenly be denied things they want. It doesn't have to be that way. In fact a budget can be very freeing and make ongoing spending decisions much easier. The key is that it needs to be realistic for you.

So where the heck do you start? I must say I was very loosey goosey with budgeting for many years. I knew what I got paid, I had a system in place to pay myself first and the rest was free game. I didn't plan out my spending, but somehow I managed to stay on track and live within my means. With the exception of a brief stint in my mid-20's where I got a little carried away with the credit card, debt and staying within budget has been a non issue for me. That is, until recently when I made the jump to full time self-employed. Now all of a sudden, budget is the name of the game for success.

Creating the Budget

The place to start is right where you are. You must first evaluate your current financial status. Specifically, go back over the last 6-12 months of financial records and determine how much you spent and what you spent it on. Don't get obsessed about detail (believe me, I've been there and done that), but on the flip side, you can't have line items like $200 spent in Wal-Mart. OK, but for what? Clothing? Household supplies? Chocolate? Electronics? I've found it helpful to stick to some top level categories such as:

-- Household: Home Repair
-- Household (General)
-- Groceries
-- Clothing
-- Personal Care
-- Medical
-- Insurance
-- Taxes
-- Dining (aka eating out)
-- Entertainment
-- Auto
-- Interest Expense
-- Charity
-- Savings and Investments
-- Travel, Vacation, and Fun

You can tailor them however you like, the point is just to have broad enough categories that you don't turn into a bean counter, but detailed enough that you can do some meaningful refining and tracking.

Of course you'll also want an Income category (you can break it down into multiple sub-categories if you have multiple income sources).

Once you get this information for the last 6-12 months, you can then divide it out to come up with a monthly figure. This becomes your historical guidepost. If you subtract the expenses from your income for each month you can see at a quick glance whether you are living within your means or beyond it.

Once you have this information, you get to create a budget. What I typically do is add a fudge factor of 5-10% to each category and make that my ongoing budget. Of course that only works if you are happy with your current savings and spending. If you are living beyond your means, you first want to go through these categories and realistically determine which ones you can reduce and by how much.

Let me pause to say that if you're not careful this exercise can just set you up for misery and self-sabotage. If you create a budget which there is no way in hell you can stick to (it is more wishful thinking than financial guide) and then set yourself up for failure. So be realistic. And, if you find that you are living beyond your means -- now is the time to do something about it. You have two choices - reduce expenses and/or increase income. Increased income is always great, but remember the richest people in the world are not necessarily those who earn the most; they are those that keep the most.

Sticking to It

Sticking to a budget is not an all or nothing affair. It is about knowing what you committed to in terms of spending for each category and then doing your best to stay within that commitment. Life does happen from time to time and you will go out of budget. Be kind to yourself. The important thing is to always note what your relationship is with your spending. It is like emotional eating; sometimes you just spend and don't even consciously know why. That extra latte, the quick trip to the bookstore, an extra beer with girlfriends, or any other expense that seems small and minor yet adds up. That doesn't mean you can't treat yourself - in fact you must! That is why I recommend budgeting a portion of your funds for fun. That's right you need to have some fun money or you'll feel like a total slave to your budget, come to resent it, and throw it (and your goals) out the window.

Here are some tips and tricks I have found for sticking to a budget and making it feel effortless (and sometimes downright joyful):

-- Shop Savvy. Whether you are shopping for groceries or big ticket items, be smart and do your due diligence with the details.

-- Put space between you and a purchase. If you are in a store (or online store) and want to buy something, put time and space between you and the point at which you part with money. "Sleeping on it" is a great strategy for eliminating impulse buys.

-- Budget for and spend some money each week on fun. No one ever wins the finance wars, it is an ongoing journey. Don't wait until tomorrow to enjoy some of your hard earned money.

--Splurge here, Pinch there. Depending on what you're spending money on sometimes you really want to splurge or spend extra to honor your values. That is fine. I bet there is another spending category where you can really pinch because it means less to you. Use this technique to align your spending with your values and interests without breaking the bank. For instance, I am very picky about what I eat, but far less picky about what I wear. I probably overspend in the food and wine category yet spend very little on clothes as I buy good quality, classic stuff that lasts forever.

-- Reevaluate regularly. Budgeting is not a once and done affair. Redo the budgeting exercise at least every six months so you can be certain your budget still makes sense based on your life circumstances.

A little up front effort can go a long way towards helping you reach your financial goals by creating a plan (the budget) and sticking to it in a way that feels easy and good instead of painful like a bad pair of shoes.

Paula Gregorowicz, owner of The Paula G. Company, works with women who are ready to create their lives and businesses the way the want rather than how they were told they "should". She is the author of the 12 part eCourse "How to Be Comfortable in Your Own Skin" which you can download for free at her blog

To get the latest word on personal finances from an LGBT perspective and Paula's practical coach approach to the topic check out Queercents

Are you a small or solo business owner who wants to be comfortable in their own skin online via a website that is a true reflection of who you are and what your business is about? Paula's signature down to earth and "plain English" approach to website design and consulting can help. Visit to download the free successful website planner.

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