We know we need budgets. They’re absolutely essential to good management of our finances.
Creating a budget is also the last thing most of us want to do. We may have no idea where to start.
The idea of budgeting sounds like the stuff of ledger books tracking every dime we spend, or worse yet, keeping us from spending money on anything fun.
Creating and living on a budget doesn’t have to be as tortuous as you may think, however.
Here are five shortcuts for creating a budget that sticks.
After you see how much control a budget provides, you may want to create more detailed budgets – or you may decide to keep it simple.
Either way, check out these tips:
Create a “backwards budget”
If the idea of figuring out how much you spend in each category seems impossible, here’s one quick way to see what you really spend every month: Start backwards.
Take the amount of money you receive every month from your paycheck or other income source. Do you have money left over every month?
Your take-home pay, minus the leftover amount, equals your total budget. You can then create categories for your mortgage, insurance, and other expenses.
This is as simple as a budget can be.
But it’s a lot better than no budget, which means having no idea how much money you need to live and pay your bills.
If you’re spending more money than you have every month; for example, if your credit card balances are higher on every statement, your basic calculation is different.
Add your take-home pay to your monthly cash deficit to determine your total monthly budget.
Create a baseline budget
Instead of creating a complete budget, you may want to create a baseline budget.
This is a budget with only the bare minimum amounts you need to get by. It has your mortgage, minimum debt payments, insurance, utilities, pared-down grocery bill, and so on.
It does not include recreation, vacations, eating out (not even fast food), or new clothes.
This budget is easier to create, because it has far fewer categories. And because everything in this budget is a necessity, there’s little to decide or argue about.
One purpose of the baseline budget is to find out how little you really need in case of a financial crisis, such as unemployment or other fluctuation in income.
You may also choose to live temporarily on a baseline budget if you are trying to reach an important goal, such as saving for a down payment on a home or paying off a credit card bill.
Once you know your baseline budget, you can add categories back to create a more comfortable budget for normal spending.
Estimate some budget categories in your head
In an age where we seem to track everything electronically — even our total daily steps on our phones — it seems retro to add things up in our heads.
Being able to remember how you’re doing on a few budget categories can make life easier. You probably don’t want to consult your budget, for example, every time you want pizza.
You can simplify your eating out budget, for example, by planning how much you spend every month in restaurants.
If your monthly eating out budget is $200, you may decide that you can stick to that goal by eating at a nice restaurant once a month, and you eat at a reasonably priced family restaurant once a week.
Automate your budget record keeping
If you’re keeping track of everything you spend on paper, or even if you enter it by hand into a spreadsheet or personal finance program, you’re doing it the hard way.
Try connecting your finances to personal finance software, so all you have to do is make sure each item is categorized properly. Or you can download transactions from your bank to a spreadsheet program.
Make putting money into savings fool-proof
The most important thing about budgeting is not whether you spent exactly the amount you planned on each category each month, or whether you can account for every dollar that came and went from your account.
What really matters is whether your total financial picture is improving each month – whether you’re paying bills, working off any debts, and putting money into savings.
You may be able to have your employer deduct money from your paycheck to put directly into a retirement account or savings, so you don’t even see the money.
You’d be surprised how much you can save in a year this way. Another option is to have automatic transfers to a savings or investment account from your bank account every month.