How to Make a Budget That Actually Lasts

Budgeting isn't a one-time thing — it's an ongoing effort.

Lauren Ward
Contributing Writer at Tally

All you have to do is make a budget. A budget will answer all your financial problems.

Sound familiar? 

In reality, budgeting is more than a one-time thing. It’s an ongoing effort to actually see a difference in your bank account. And those benefits don’t always come easy.

If you hit a few bumps along the way, it can be easy to ditch the budget and go back to what you were doing before. The goal here is to keep yourself on track, to make a budget that stands the test of time and actually lasts. 

And if you’ve made a budget before that didn’t work, don’t get discouraged. Being motivated and committed are keys to budgeting — and being here shows you’re ready!

1. Make a list of your fixed expenses.

Start off by listing out every single one of your fixed monthly expenses. These are the expenses you can’t easily cut back. Here are some common examples:

  • Rent or mortgage
  • Health insurance
  • Utility bills 
  • Student loan payments
  • Car payments
  • Credit card minimum payments
  • Personal loan payments

This first step is simply about gathering information. It’s helpful to have all this information in a single place. Whether you create a digital spreadsheet or keep a hardcopy list in a notebook, track every consistent bill to build your awareness of your true expenses.

And while it’s possible that you can save money by moving, renegotiating phone or internet contracts and refinancing to lower your interest rates, that’s not the primary focus for fixed expenses. 

For now, write down the amount of each expense and its due date each month. Also take into account other bills that come up less frequently, like an annual renter’s insurance premium or an annual health care deductible. To account for those required expenses, take the total and divide it by the number of months it covers. For example, if your renter’s insurance costs $120 each year, put away an extra $10 a month so you’re not blindsided when the bill comes.

Whether you create a digital spreadsheet or keep a hardcopy list in a notebook, track every consistent bill to build your awareness of your true expenses.

Once you’ve listed out all of your fixed expenses throughout the year, add it all up. This process helps you prioritize your overall spending by identifying your necessary expenses before you figure out how much you have to spend on discretionary expenses. 

2. Figure out how much you have left over.

Once you have a monthly total for your fixed expenses, subtract that amount from your total after-tax income.

If you have things like health insurance and 401(k) contributions that are automatically deducted from each paycheck, use your pre-deduction check amount and then include your health insurance and retirement deductions as separate line items in your budget. You might want to discount them completely, but keep track so you have a comprehensive view of both your earnings and your spending.

Once you know how much money is leftover after your monthly essentials, you’re ready to dive into the details of where the rest of your cash goes.

3. Make a list of your variable expenses.

Now, it’s time to add your variable expenses to the list. These are the expenses that change from month to month, and they often can be modified to save money. Variable expenses include things like:

  • Groceries
  • Clothing
  • Subscriptions 
  • Entertainment
  • Gas and transportation
  • Phone, cable and internet

In addition to listing out each expense category, look back at your recent bank and credit card statements to see how much you actually spend on a regular basis. There are plenty of apps you can use to help you with this step, but you should do it manually once so you really understand where your money goes.

4. Organize your spending into categories.

With a full picture of how much money you spend every month, you can see the difference between your income and spending. The next step is categorizing your spending, in case you need to narrow the gap between your income and spending.

Set a dollar amount for each of your spending categories. Some examples include: groceries, transportation and entertainment. If needed, include extra room in your budget if you’re adding to your savings account or paying off debt every month. 

Looking at your spending categories can be an effective way to cut costs.

If you’re looking to put more of your money toward savings or debt payments, you may consider reducing your spending on entertainment for a few months. If you want to become debt-free by a certain date, be more aggressive.

And if you have a savings goal by the end of next year, determine how much you need to save each month to get there, then cut back other areas accordingly.

5. Track all of your spending. 

Whether you’re tech-savvy or prefer more traditional methods, it’s crucial to track how you spend compared to your budget.

When you’re just getting started, review your spending every single day. As you build better habits and get used to your new budget, you can move to weekly or bi-weekly check-ins with yourself.

There are several apps available that you can use to track your budget through your smartphone. You can also manually input your expenses into an old-fashioned computer spreadsheet or write everything out in a notebook. Pick a method that matches your lifestyle.

If you like reminders and have your budget with you at all times, start with an app. If you enjoy the process of manually updating your expenditures, keep a budget journal in your bag. The key is to pay attention to your money consistently.

Mistakes to avoid along the way

Now that you’ve created the framework to make a budget, stay on the lookout for common mistakes that can derail your success.

1. Giving up too quickly 

Sticking to a budget can be tough, especially in the beginning! If you spend more than you budget for one week — or even for a whole month — don’t give up. Think of it as an opportunity to look for new ways to track your expenses.

Your budget needs to grow and evolve with you. It won’t be perfect right out the gate, and it’s up to you to recognize what works and what doesn’t. Find a strategy that works better for your personality and lifestyle.

Many people swear by the cash envelope system, in which you write a spending category on the outside of an envelope and then put the amount of cash you’re budgeting inside it. For example, let’s say you budget $100 for one week of groceries. You must only use the money in the envelope and, once you spend it all, you’re done for the week. 

Another popular budgeting method to help you stay on track is the 50/20/30 rule. This method simplifies the budgeting process by uniformly spending 50% of your income on needs, 20% on savings and 30% on wants. If you have trouble figuring out your spending categories, this can be an effective starting point, especially if you’re still figuring out your savings or debt payoff goals.

2. Being too strict with variable expenses

It’s easy to get burned out from a budget, especially if you don’t give yourself at least a little bit of wiggle room for fun. You might feel inspired to be merciless in cutting your expenses, all for the sake of paying off debt or saving up for a major purchase. 

These are excellent reasons to make a budget, but you still need to let yourself have some breathing room. Another alternative is to schedule a small celebration when you reach pre-determined milestones.

3. Losing momentum 

Even if you’re not too stringent with your spending categories, you might lose momentum with your budget after a period of time. One effective way to combat this is to find an accountability partner, such as a friend or family member who has similar goals in improving their finances.

Start a text thread. Facetime each other when you’re feeling temptation to spend outside your budget. Check in face-to-face on a regular basis. You don’t have to share specific numbers if you’re uncomfortable, but it’s helpful to choose some you trust enough to show some vulnerability from time to time.

If you prefer to tackle your budgeting challenge on your own, try using an incentive like an if-this-then-that type of app. This involves automating your savings when you perform certain actions.

For example, you might trigger a transfer to your savings account if you meet your FitBit sleep target or go to the gym. You can also round up purchases to the nearest dollar and transfer the difference to your savings account as an easy way to save.

Bottom line: You got this.

Budgeting may seem like a complicated process, but it can actually become fun once you get the hang of it. The important thing is to figure out what motivates you and take the time to discover the best tools for managing your money.