How to Set Up a Realistic Monthly Budget That Actually Works
There are some striking similarities between budgeting and dieting, particularly when it comes to the challenges. In both cases, people often develop plans that look good on paper but are impossible to stick to in real life.
If your budget is too strict, you’ll abandon it quickly. If it’s too vague, it might result in little to no progress.
The goal is an actionable plan and balance: a budget that is sustainable, fits your lifestyle, can adjust as life changes, and helps you make measurable progress toward your financial goals.
Start by Tracking Where Your Money Goes
Before you can decide what to change, you need to know how you’re spending now. Review the activity in your accounts from the previous month, or preferably the past several months.
Be thorough. Don’t just list the big things like your rent and car payment. Include all the little expenses too, like subscriptions, eating out, and impulse purchases.
You can do this with a physical notebook, a spreadsheet, or a digital tracking tool. What’s important is capturing a clear picture of your actual spending habits.
Prioritize Essential Expenses
Once you have the numbers, separate the “musts” from the “wants.” Essentials usually include housing, utilities, groceries, transportation, insurance, and minimum debt payments. These form the foundation of your budget, so they get covered first.
Identify Flexible Spending
Next, look at discretionary spending: dining, entertainment, shopping, hobbies, and other extras.
One of the biggest mistakes people make when creating a budget is assuming they can eliminate nearly all of this flexible spending. These are not unimportant expenses. They make life enjoyable, and attempting to zero out every one will make your budget unsustainable.
A realistic budget doesn’t eliminate these categories, but it sets limits that keep them from crowding out essentials, debt repayment, or savings.
Build in Savings and Debt-Repayment Goals
A strong budget incorporates savings and debt repayment. If you’re carrying debt, factor in extra payments to bring balances down faster. Even small amounts make a difference when you’re consistent.
There are many free calculators available online that allow you to determine things like:
How long it will take you to pay off credit card debt with specific monthly payments.
How much interest you’ll accrue if you follow that repayment plan.
How much you can save by paying down term loans early, like auto loans or mortgages.
Understanding how much you can save by eliminating your debt, or paying it down faster, can be a great source of budget motivation.
For example, if you have 20 years left on a 30-year, $250,000 mortgage at 6%, and you commit to paying an extra $50 toward principal each month, you’d be cutting your repayment period down by roughly a year and saving about $10,000 in interest.
Knowing you’ll get that kind of savings just by budgeting for an extra $50 toward your mortgage each month might help you stay motivated and stick to your budget.
Pick a Budgeting Method That Fits You
The best budgeting approach largely depends on a person’s or household’s financial situation, goals, and spending habits.
Category-based budgeting assigns limits to each spending category. It’s straightforward and works well if you like structure.
Zero-based budgeting means you give every dollar a job, whether it’s for bills, savings, or discretionary spending. This approach ensures nothing slips through the cracks.
Envelope or cash systems involve setting aside cash for different spending categories, making it harder to overspend. It’s typically safer to keep your cash in different accounts rather than physical envelopes, but the concept works either way.
There’s no single method that works “best” for everyone. The ideal approach is the one you can stick to consistently.
Use Tools That Work for You
You don’t need fancy software to succeed. Some people thrive with a basic spreadsheet, while others prefer apps that allow for spending categorization and tracking. There are even specialized apps for specific budgeting methods.
The key is choosing a tool you’ll actually use, not the one that looks most sophisticated.
Review and Adjust Regularly
Budgets aren’t set in stone. Your income might change, expenses might rise, or your goals might shift. Make a habit of reviewing your budget every month to see what’s working and what isn’t. If you overspend in one category, adjust for next month rather than abandoning the whole plan. Small tweaks over time make a budget sustainable.
Having the Right Accounts Can Help You Meet Your Goals
Your bank or credit union can be an essential part of a successful budgeting plan. Having a dependable financial institution where you can open separate accounts for savings, track your spending, and manage your money through secure online and mobile banking makes it much easier to stay on track.
Ouachita Valley Federal Credit Union offers the tools and member-first approach that help Monroe and West Monroe savers put plans into action. Become a member or learn more about the benefits of banking with Ouachita Valley FCU by calling 318.387.4592.
