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I discussed in a previous blog how everyone needs a budget—no matter how big your bankroll. But how does a budget work and how do you stick to it? Good news: I have created a checklist to help you stay on track. Trust me, you’ll feel good knowing exactly where your money is going instead of scratching your head, wondering where it all went at the end of each month.

Frivolous shopping purchases, frequent restaurants visits, and various forms of entertainment can add up quickly. I’m not saying you shouldn’t indulge in these things, but being mindful of your spending habits allows you to save and/or invest a larger chunk of your paycheck each month. That way, instead of your money mysteriously disappearing, it will multiply.

  1. Go through your bank statement and write out every bill and monthly expense. You may have to average some of them, but that’s okay. This includes all your utility bills, mortgage, car payment, home, car and life insurance, child support, daycare, student loans, cell phone, gym membership, credit card payment, prescriptions and other outstanding loan payments. It’s best to write these out in a spreadsheet so you can have everything in front of you.
  2. Record other expenses you encounter throughout the year (but not monthly) and divide them by 12. This includes things like property taxes, car repairs and oil changes, vet bills, glasses or contacts, tax preparation fees, medical expenses, charitable giving, vacation expenses also camps and lessons for your children if you have them.
  3. Go through your bank statement again and add up about how much you spend in each category per month. This includes everything from groceries, gas, restaurants and clothing, to coffee shops, parking fees, hair salon fees and gifts for others. Analyze these amounts. Are you happy with how much you’re spending in each area? If not, set a budget or limit of what you believe is reasonable and attainable.
  4. Write out your total monthly income after taxes and subtract all of the above expenses from it, including what you budgeted in each category. How does your bank account look now? Are you spending more than you make or is there a considerable amount leftover to save? Some believe in living by a 50/30/20 rule—reserving 50% of your income for essentials like housing and food, 30% for lifestyle choices, and 20% toward “financial priorities” such as debt payments, retirement contributions and savings. I recommend creating an easy-access emergency fund savings account that contains at least six months of your monthly income. Then you can start tackling high-interest debts if you have any.
  5. Track your expenses and check your bank account frequently to see if you’re staying on track with your budget. This is the hardest part. While you can do this with a spreadsheet on your own, if you prefer to use a website that does it all for you, I recommend Mint.com. Once you enter your credit and/or debit card information, Mint tracks all of your expenses in various categories and sends you alerts if you have overspent in certain areas.
  6. Use cash. If you constantly struggle to stay on budget in certain areas, consider withdrawing the amount you want to limit yourself to, putting it in an envelope and only spending that amount. Having a limited amount of cash will usually force you to budget much more carefully since when it’s gone—it’s gone.
  7. Don’t give up! Sticking to a budget is hard, but it’s worth it in the end if it means you’re spending less and saving more. Like a diet, you have to be dedicated in order to see results. Budgeting is also trial-by-error. You may need to adjust it on a monthly basis depending on your situation. Good luck and happy budgeting!

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and President of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®
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