1. Keep it simple. While a budget can be a great tool for managing finances, it can quickly become overwhelming if it’s overly detailed or idealistic. “There are things that you will likely sacrifice when budgeting, but it’s very important to be realistic and understand your own habits,” says Kristin Wong, a contributor to the financial blog Get Rich Slowly. “If I have a problem area within my budget, like eating out or shopping, instead of trying to focus on everything and being too hard on myself, I pick that one area. The hardest part of a budget is sticking to it, so the easier you can make it, the better.”
2. Set a time period. Establish your budget for a time period that’s long enough for you to see results. Stephen Lovell, a certified financial planner with Lovell Wealth Legacy in Walnut Creek, Calif., suggests budgeting for one year at a time. Budgeting month-to-month can accommodate everyday living expenses and bills, but a yearly budget can help you also plan for larger and more infrequent expenses, like income taxes or holiday presents. “You don’t want things to slip away,” Lovell says. “It’s better to be approximately right than precisely wrong.”
3. Build an emergency fund into your budget. An emergency fund should be an essential component of every budget. It can help you finance unexpected expenses like medical bills so you don’t have to pull income from other areas. “For example, allocate just as much to your savings as your emergency fund,” Wong says. “Once you have that, it’s a lot easier to maintain the budget if a big expense springs up.”
4. Don’t worry about finding the perfect record keeping method. Just as there are many ways to create a budget, there are also many ways to keep track of it. Whether it’s through an online budgeting program like Mint or Quicken or on paper, stick to whatever works best for you. “Make sure you approach it in a manner that you are comfortable with,” Beck says.
Find more tips on creating a personal budget here.