How to Make a Budget Work  

Budgeting should be one of your wealth habits. You might already know how to make a budget but once you have one, how do you use it?

If you want to figure out how to make a budget work for you, you need to come up with an easy way to keep track of your expenses as the month goes on. You also need to frequently add everything up so you can see how your actual expenses are comparing to your planned expenses.

Therefore if you want to make a budget that actually helps you, the key part is for you to be able to track everything quickly and easily and review it frequently. Let’s look at the key steps in how to make a budget work.

How to Make a Budget Work - Step1: Create a budget

If you want to learn how to make a budget and the numerous reasons why everyone needs a budget you can review what I wrote on personal budgeting habits.

So I am going to assume that you already went through the initial steps to create a personal finance budget: you determined your monthly income, added up all your expenses, subtracted your expenses from your income and determined if you are spending more than you make or not.

How to Make a Budget Work - Step 2: Allocate every dollar with a spending plan

Now that you know how much is coming in and have an idea of how much is going out you need to take control of your spending by determining how much you are going to spend on what. This is done by creating a spending plan.

If you follow that link you will see that with a spending plan you are being proactive and taking control of your spending. Instead of waiting to the end of the month to see if you have anything left, you “spend” your money on paper first to ensure you have some left at the end of the month.

This step is a critical part of the “pay yourself first” approach. Because in your spending plan the first dollar that will be spent is the one going to your saving and investing accounts.

How to Make a Budget - Step 3: Go Spend!

Now you are ready to spend some money! Go out and use your money the way you planned it. Because you have allocated money for groceries, clothing, fun, bills, etc. You now know you have the money for it. The only thing you need to watch is that you don’t spend more than what you budgeted.

My recommendation here is for you to pay as much as you can with checks, credit or debit cards and minimize the use of cash. I say this mostly because those methods are easier to track than cash. And as you will see in the next step, tracking is crucial in order to make a budget work.

As an extra perk, credit and debit cards give you rewards, cash back and discounts. If yours doesn’t have one of these perks then shop around and find one that does.

CAUTION: Credit Cards can be a double-edge sword. If you have had problems using credit cards responsibly I would suggest you stick to cash, checks and debit cards. Only buy things on a credit card if you know you will pay it off when the bill comes. I highly recommend you have only one credit card.

How to Make a Budget Work - Step 4: Track it weekly

This is the critical part and the Achilles heel on many personal finance budgets. Unless you regularly add up your expenditures you will not know how you are doing on your budget. Regular review will also allow you to see if you have overspent somewhere else and now need to cut elsewhere.

This is where paying for things with check, debit and credit comes in handy. Go to your bank or credit card account website and download your account information. Most banks and credit cards offer this feature nowadays.

Downloading is fast and easy. Once you have all your expenses downloaded now you can do two things:

1. Put it into a spreadsheet into your different income and expense categories and let the spreadsheet do the adding for you. You can use a simple spreadsheet like mine to track it all, or

2. Print it out and in a notebook/ledger add up your different categories manually.

This regular review will allow you to compare actual spending vs. planned spending. For example, let’s say you gave yourself $400 for groceries for the month. When you have to go grocery shopping on the 21st of the month, how will you know how much money you have left for groceries?

Answer: when you did your weekly budget review and added everything up you saw you had spent $312 so far in groceries for the month. Therefore you now have only $88 left for your grocery shopping. Get it?

How to make a budget work is about making it easy on you. Once you get this process down it only takes 10-15 minutes on a weekly basis. If you use these tips on budgeting you will find that you can control where your money goes much better.

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