How To Make A Budget That Actually Works For Your Lifestyle

Having trouble learning how to make a budget? You're probably making a pretty common mistake.

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According to recent research, in 135 out of 144 countries, women know less about finances than men do. (Guys aren’t off the hook, though—about 38 percent of men are financially illiterate.)

The problem isn’t going away anytime soon. In the United States, women hold roughly two-thirds of all student debt, and the gender pay gap is totally still a thing. Women make less, owe more, and often have trouble creating basic budgets that actually work, thanks to cultural biases and outdated societal expectations.

Yes, it sucks. Fortunately, there’s a way to get the money you do make in order: Learn how to make a budget. Don’t worry; it’s not nearly as painful as it sounds, and it’s a remarkably simple process once you’ve got the right outlook.

If you’ve been putting off learning how to make a budget because you’re worried about ruining your awesome lifestyle, relax. Learning how to make a budget actually reduces stress, eliminates debt, and—our favoritegives you spending money.

It’s basically awesome financial witchcraft performed with a spreadsheet, smartphone app, or (our preference) a paper planner. Unless you have access to actual financial witchcraft (let a girl know), you’re going to want to read on.

How to Make a Budget, Step One: Understand why most people can’t stick to budgets.

Budgeting has a bad reputation, so it shouldn’t come as a surprise that people who are learning how to make a budget for the first time often end up cheating a little…then eventually dropping their budgets altogether. More often than not, they’re trying to do too much without understanding the first rule of budgeting.

“The goal is to make the budget realistic,” says Michelle Hung, who is a Chartered Financial Analyst and the founder of online financial education platform Sassy Investor. “It’s no fun setting so many restrictions on yourself, because you’ll start to resent your life.”

“It’s like a diet,” Hung explains. “If you are super strict and don’t allow yourself little splurges, or if you set up unreasonable workout schedules, then you’re just setting yourself up for failure.”

That’s not to say that you won’t be reining in the expenses. But before you try to conquer your mountainous student loan debt (sorry to bring that up) or cut your food budget down to a dollar a day, make sure that you’ve got the right perspective. For most people, that means thinking carefully about what you need versus what you want.

Remember, when you figure out how to make a budget that works, you will be able to make space for wants. But for that to happen, you need to take a long hard look at your perception of money.

“For the ‘big spender,’ they have to distinguish between needs and wants, and this can go even further back and dig deep into what they value,” Hung says. “Do they value material things? Do they spend on these things to make them feel good? Are they insecure about something? Can they simplify their life and not have so much ‘stuff’?”

As you start figuring out how to make your budget, keep asking yourself those tough questions. Try not to take anything for granted—and trust that, in the end, you’ll still have money for the occasional splurge.

First, though, you need to reach for a pad of paper.

How to Make a Budget, Step Two: Write down income and expenses (and ask questions).

Okay, ready for the hard part of learning how to make a budget? (Spoiler: It’s really not that hard.)

Start by listing all of your income sources along with every recurring bill or predictable expense. You’ll want to list everything from your Netflix subscription to your mortgage. If you don’t have exact numbers (like for utility bills, for instance), it’s okay to estimate.

Once everything’s listed, break your expenses into categories. Some common examples:

  • Entertainment: The aforementioned Netflix subscription fits in here, along with books, movie tickets, and other non-essentials.
  • Personal Care: This might include skincare products and cosmetics, but you can also lump in haircuts or spa treatments.
  • Mortgage or Rent: For most people, this the biggest single item in the budget, so it often gets its own category.
  • Wellness: This might include things like health insurance, therapy co-pays, or gym memberships.

Those are just a few basics, and you’ll build in plenty of other categories as you work through your list. If you’re struggling to think of categories, apps like Mint, You Need A Budget, and Mvelopes can help (we’ll have a few more words on those in a moment).

Right away, if you’re not already living frugally, you’ll see a few places where you can trim down your expenses. However, remember to look closely. Some “needs” might actually be “wants,” and properly identifying them can help you avoid sinking deeper in debt.

With that said, we’re not quite at the “eliminating expenses” stage yet, and we’re not quite done with that paper.

How to Make a Budget, Step Three: Set up your financial goals.

Here’s the whole point of learning how to make a budget: It’s time to set up your goals. This is where you’ll start to see how your budget will revolutionize your financial life, so be prepared to celebrate (ideally, without purchasing any new bottles of champagne).

First, let’s address one of the other major reasons that people don’t follow their budgets: They encounter an emergency scenario, start spending…and immediately run out of money. That emergency might be a busted car, an unexpected visit to the doctor’s office, or a layoff you didn’t see coming.

Therefore, your first financial goal should be to build up some savings. Budget experts often call this “paying yourself.”

“Unfortunately, many people put this last on the priority list,” personal finance consultant Andrea Woroch tells HealthyWay. “What happens then is that some months may get tight with additional expenses and [saving] gets ignored.”

Woroch recommends incorporating a hard-and-fast rule as you make your budget: Always put a percentage of each paycheck directly in your savings, without exception. Experts often recommend 20 percent, although the exact percentage will change with your financial goals over time. The point is that you’ll always be paying yourself.

“Put this money into a separate account,” she says. “Consider opening up an online savings account to get a better interest rate.”

Set your emergency fund goal to cover several months of your essential expenses. Your emergency fund will be your first major goal, after which you can think about home down payments, retirement funds, and fun things like vacations and private Cardi B concerts (hey, we don’t know how much you’re budgeting).

There’s one thing that should take precedence over your rainy day fund.

“In building a budget, there are a few things [women] should do before saving for their goals,” explains Hung. “One being, if they have credit card debt, or any high-interest loans, they need to get rid of that first—before saving for their emergency fund or their goals. Then, they definitely should have an emergency fund set aside, ideally three to six months of expenses, depending on the risk of their primary income or [whether they have] dependents.”

If all goes well, you’ll eventually set up your monthly budget with last month’s income, which is an incredibly liberating feeling if you’ve been living paycheck to paycheck.

How to Make a Budget, Step Four: Track your expenditures.

At this point, your budget is pretty much good to go. It’s time to start tracking every single payment you make.

That might sound like a big deal, but depending on your current spending habits, it might not be too bad. Dedicate 20 to 30 minutes at the end of the day to tracking those expenses (though you probably won’t use that entire chunk of time, unless you’ve been doing some serious shopping).

The good old internet makes expenditure tracking pretty easy. If you pay for everything with a debit card, check your bank statement at the end of the day and enter expenses in each relevant category. If you use credit cards for some payments, track them at the point of purchase, making a note of the payment type so that you’re able to pay down the credit account at the end of the month.

Apps like Mint can help you track payments automatically, but our financial experts recommend tracking transactions by hand wherever possible. Whether you’re entering numbers into a spreadsheet or writing down expenses in a money planner, you’re thinking about the transaction and creating a habit that might stop you from overspending in the future.

How to Make a Budget, Step Five: Make mistakes, make adjustments, and enjoy your new budget.

You’ve learned how make a budget, you’ve set some goals, and you’re meticulously tracking every purchase you make. You’re doing everything according to plan.

Guess what? You’re going to screw up.

We’re not just being pessimistic! Successful budgets aren’t rigid, inflexible rulesets. They require constant adjustment, and in some cases, you’ll find yourself going over budget in certain categories.

The best practice is to pass those overspends off to the next month, where possible. For instance, if you budget $200 for entertainment and spend $210, budget $190 next month to get your books back in order. When that’s not possible, learn from your mistake, adjust your budget or spending habits, then move on. Don’t dwell on mistakes, and don’t get discouraged if you don’t immediately upgrade your financial habits.

While you’re logging expenditures, look for places where you can save without significantly reducing the quality of your lifestyle. Sometimes that means rethinking old advice.

“If you’re expecting a kid, don’t fall into the trap of thinking you need a bigger house or car,” Woroch says. “Babies don’t need much room! Stay put and save up until you can truly afford more space.”

That’s a fairly extreme example, but it gets to the heart of the problem: Learning how to make a budget is all about differentiating the wants from the needs and logging absolutely everything. Commit to those two principles, and you’re probably in good shape. There’s no hard-and-fast rule, and your budget will adapt to your lifestyle over time.

“As long as people live within their means, are being diligent with saving, and are not overspending, especially on fixed items (e.g., having a mortgage they cannot afford so they end up being house-poor), then it really is up to the person what works for them,” Hung says.

“I believe budgeting is something anyone can do, and frankly should do,” she notes. “I always say that if you know how to make money and spend money, you certainly need to know how to manage it properly.”

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