What Is the Key to a Successful Budget? (2024)

The Key to a Successful Budget

It’s one thing to create a budget. It’s another to stick to it through thick and thin.

Your expenses will fluctuate often. Your income could go up or down. But one thing that must stay the same is your persistence.

Persistence is the key to a successful budget. But what does it mean to be persistent with your budget?

Budgeting is deciding how you’re going to spend your money. Once you make those decisions, being persistent means following through on the decisions you made.

That doesn’t mean that once you create a budget, it’s set in stone and you must persist when adjustments are clearly needed. Your goals, your income, and your expenses change. Your budget has to be flexible enough to change when your circ*mstances change.

Budgeting Success

If you’re sick of struggling financially or your financial life needs improvement, imagine a life where:

• Your paycheck gets direct deposited every two weeks on Friday.
• Some of your money goes toward retirement, you put some money into savings, and your upcoming bills get paid, all thanks to automating your finances.
• Over the weekend, you run your errands and go out to dinner with your family.
• You have enough money to cover all your monthly expenses while your savings grow.
• There’s money in the bank available in case of an emergency.
• You pay for large purchases in cash by saving up for them instead of using credit cards.
• You spend quality time with your family without guilt or stress.
• You sleep better at night knowing that your financial life is under control.

Does that sound unrealistic? With a successful budgeting strategy, it’s not.

A Successful Budgeting Strategy

You make a budget because you have financial goals. You might want to get out of debt, own your own home, pay for your child’s college education, or retire early. A successful budget starts with keeping your goals in mind when you create your first budget.

A budget is more than a tally of your monthly income and a list of expenses. Your budget reflects your financial goals and your priorities. Every decision you make throughout the entire budgeting process should reflect your priorities.

Here are some additional budgeting tips to help you build a financially sound budget:

Set Up Your Budget

You’ll need to gather your pay stubs, bank statements, receipts, and bills.

Identify your fixed expenses, which are due the same day for the same amount every month, like rent. Average out your variable expenses, which can change based on your needs or use, like groceries. Don’t forget periodic expenses, like your car registration and back-to-school stuff. For more guidance on listing your expenses, see: The 3 Types of Expenses in a Budget: Fixed, Periodic, and Variable

Calculate your typical monthly income and add up your usual monthly expenses. You can use a pen and paper, a spreadsheet, or free budgeting software like Mint. It doesn’t matter what tools you use. The point is getting on a budget.

After you’ve done the math, if your income is higher than your expenses, you’re off to a good start. If your expenses are more than your income, you have work to do. You can either reduce expenses or increase income.

Create a Realistic Budget

A solid budget plan, one you can live with and stick to, has to be realistic. You can’t just decide you’re only going to spend $200 a month on groceries from now on if you spend $600 in a typical month. If you’re not sure how much to budget for each expense category, review your bank statements or track your expenses for a week or two to get a baseline.

Keep the Budgeting Process Simple

You can use any budgeting method you like, whether that’s the envelope system, a zero-based budget, the 50-30-20 method or something else. You’ll have a harder time budgeting and staying with it if you choose a method you find tedious or too complicated. A simple budget can be just as effective as the most elaborate, labor-intensive budget.

Decide Which Expenses You Can Cut or Reduce

Most people can find some examples of wasting money or things to stop buying. When you’re tracking your spending and going over your list of expenses, something will likely jump out at you. It could be something like the amount you spend in restaurants or subscriptions you don’t use.

While it’s easy to obsess over little things and save a few bucks here and there, you should also consider how you might save money on larger expenses you can’t avoid. Can you reduce living expenses by saving on your housing expenses, your grocery budget, or your transportation costs? Rent and other fixed expenses are hard to reduce, but it can be done.

Other mandatory expenses you can look into lowering include car, home, or life insurance and utility bills. You can often find cheaper insurance by shopping around. You can lower your utility bills by reducing usage, switching to LED light bulbs, and opting for energy efficient appliances.

Only Buy Items You’ve Budgeted For

You understand why budgeting is important, but that doesn’t make it any easier to stick with it. Easy access to credit, online shopping, and targeted marketing messages tempt us every day.

If you’ve ever gone to a store intending to buy one or two specific items and come home with a bunch of stuff that wasn’t on your list, you know how that ruins your budget. Once you have a budget in place, it’s important you only buy things you’ve budgeted for. Impulse buying will destroy even the most carefully prepared budget.

A good deal on shoes is only a good deal if you budgeted for shoes this month and the sale price is below your budgeted amount. Nothing is a bargain if it requires going over budget or into debt.

Consider Increasing Your Income

Living a more frugal life by cutting unnecessary spending isn’t the only way to improve your current financial situation or reach your savings goals. Adding an additional stream of income works too. Whether you save $500 a month by trimming your spending or make an extra $500 with a second job or side hustle, that’s $500 in your pocket that wasn’t there before.

Having multiple income sources helps you reach your goals faster. It also provides some level of protection in case of a job loss, a pay cut, or unplanned expenses. You can get a second job, freelance in your spare time if you have in-demand skills, or pick up a gig economy side hustle like driving for DoorDash or selling on Poshmark.

Live Below Your Means

Live below your means. You have to spend less than you earn. It’s one of the most basic principles of personal finance, but also one of the most important.

You cannot create a successful budget or meet your financial goals if you don’t spend less than you make. It only takes a couple of bad decisions to blow up your finances. Creating a budget and following it will help you live beneath your means.

Save for Emergencies

Financial plans that don’t include setting money aside for emergency expenses are incomplete. Unexpected expenses often lead people into credit card debt or other financial trouble. Medical issues, car problems, home repairs, job loss, and other emergencies can lay waste to your finances. You can’t predict every possible scenario where tapping your emergency fund will be necessary, but you can expect the unexpected.

Unplanned expenses don’t have to lead to financial ruin. When you have 3 to 6 months’ worth of living expenses in your emergency savings fund, you have options. You won’t feel stuck and you’ll have time for making decisions.

You can save money on a low income or a tight budget, even if it’s only 10 or 20 dollars a week. Put what you can into an account you don’t touch unless there’s an emergency. You can always save money more aggressively later.

Review Your Budget Regularly

Review your budget monthly. The end of the month when you’re planning for next month is a perfect time.

Compare what you planned on spending versus what you actually spent. If you go over in a particular category, figure out why. Look for changes in income or expenses, find leaks within your discretionary spending, and make adjustments as needed.

Finding Budgeting Success

Once you create a realistic and accurate budget, the one thing that will determine whether you succeed or fail is persistence. That’s the key to a successful budget. Your persistence in sticking to the budget in the face of temptation and opportunities to overspend can turn your current finances around and help you reach your goals.

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