How to Make a Budget and Stick with It

Improper budgeting or no budgeting at all is probably the number one reason so many people are in debt these days. Making a realistic budget will give you the best shot at living within your means and hopefully having enough leftover to save for a rainy day(or retirement). Making a good budget takes time. You need to figure out what you spend every month on average. To get this average you have to track what you spend for several months. This way when all those little bills that unexpectedly come up, you will be waiting for them with cash in hand! Well, enough blabbing on to the steps to making a good budget!

List Out All of Your Expenses:

The main problem with looking over credit card bills and checking statements to make you budget is that the miss one thing: CASH. Many people pay cash for a lot of things and to make a good budget, you must know where you are spending every penny. It is easy forget where you spent all of your money at the end of the month. You need to start keeping track of this.

Tip: For two months go around with a sheet of paper and write down every expense you have. Every time you make a purchase, even if its just for a cup of coffee should be written down. This way you will start to get an idea of where your money is going. Don’t forget any expenses that you pay every year but didn’t come up in this two month period. Some examples are: property taxes, car registration and maintenance, magazine subscriptions, tax preparation fees and insurance payments.

Figure Out Your Total Income:

Now that you have figured out your expenses, you now must figure out how much you make every month.

On another sheet of paper, total up all of your sources of income. Remember to put in incomes other than your job. Examples:

1) bonuses

2) dividends/interest

3) Retirement income/Pension

4) Public Assistance

Sum all of these up for the year and then divide by 12 to get your total average monthly income.

Making The Budget:

Ok, now that you have your expenses and your total income, we are ready to make the budget. Here are some steps to follow when making your budget.

1) Determine categories in which all of your expenses can go in. Ex: groceries, gas, insurance, utilities etc.

2) Using your actual expenses from the first two months, write down all of your expenses and put them into the categories. *Make sure you break them all into monthly expenses. For example, if you only get your car insurance bill twice a year, divide the bill by 6 to find the average expense per month.

3) Add up your total monthly expenses.

4) Subtract you total monthly expenses from your total monthly income to figure out the difference.

If your expenses exceed your income, you know you have to work on your budget some. There are two ways to fix it. Earn more money or Don’t spend so much. If you are having trouble making things work, go through your list of expenses and add up all of your expenses one by one. Start by adding the things you need like food and the utilities and keep adding on the wants until you hit your total monthly income. You know everything after that must go. You have to make some sacrafices.

Sticking to It:

If, after a while, you get frustrated because you didn’t budget in some things that are important to you like going to the movies, then you can change your budget around a little bit. Your budget isn’t set in stone. Also its a good idea to put in a little buffer in case you happened to miss a few expenses. If they never come up, you can just add that to your savings. Don’t forget to be realistic, you will never stick to it if you only allocate funds for the necessities like food, clothes and shelter. You have to have a little fun. Good luck!

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  1. You should read the book Automatic Millionaire by David Bach. His idea
    is to pay yourself first. For example, you decide that you want
    to save 10% of your salary. Budgets don’t work month to month. But
    it is a great idea to create a budget so you have a rough idea of
    your own personal P&L.

    You put 5% into a 401k plan. The other 5% goes into your checking account — You have just paid yourself 5% first. Next you transfer that 5% into a savings
    account that pays at least 3% interest.

    Budgeting is difficult to do. Too many Americans are living paycheck to
    paycheck. They are buried in credit card debt. My suggestion is to
    have a debit card, and a 2 to 3 credit cards.

    This makes your budgeting much easier because
    you have less items to budget.,

  2. Thx for your comment Dave, I have heard about that book several times before. Maybe its time I head over to the library and check it out.

  3. Dave

    Thanks for the great information. I think people will pay
    more attention to this post moreso now than they would
    have in the past because of the trying economic times.

    great information. Putting a budget into place is what a
    lot of individuals need so that they can start to see the
    light at the end of the tunnel

  4. Great work Dave,
    A lot of good information here for a person to track of their budget. Like keeping track of their sending. I sure the this will definitely helps everyone out..