Money

How to Create a Budget That Won’t Fail

May 16, 2016
There are multiple ways you can tackle setting up your budget, but regardless of your budgeting strategy, there are a few things you want to remember so your budget won't fail.
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Last week I went in on the 9 Reasons Your Budget Sucks. I hope you didn’t think I was going to leave you hanging. Today I want to share you how you can get out of budget suck mode and create a budget that won’t fail.

It’s not hard once you get the hang of it and when you start meeting those financial goals, you’ll be happy you put in the effort. Without further adieu, let’s discuss the (my) criteria for creating a budget that won’t fail.

 

There are multiple ways you can tackle setting up your budget, but regardless of your budgeting strategy, there are a few things you want to remember so your budget won't fail.

 

Be generous

When I say be generous, of course, it could mean include charitable contributions in your budget. But that’s not what I’m talking about. I’m specifically referring to you!

Be generous to yourself. Don’t be so restrictive with your budget that you can’t enjoy life. Be generous by including enough room for at least one thing that’s important to you. Without this aspect, you’re setting yourself up for failure.

 

Related Reading: How to Have a Life and a Budget

 

Get yourself some goals

Don’t create goals you can’t realistically achieve. Remember, we’re trying to create a budget that won’t fail. Focus on things you actually WANT to achieve and break them down into micro-goals. I like examples, so let me give you one.

Let’s say you’re 32-years-old like me and you want to be debt free (excluding your mortgage) by the time you’re 40-years-old. If you’re $80,000 in debt like me, don’t focus on the big number. Take a portion of your debt and focus on paying it off within a reasonable amount of time. Perhaps $10,000 in 6 months…something like that.

 

Be realistic with your expenses

If you have a baby and they go through a case of milk per week, don’t try to budget for only two cases per month. I can certainly attest to the fact that they won’t appreciate it very much! My son goes through the same amount of milk each month so I already know how much I’ll spend.

I don’t even try to save on this expense either because it’s one more thing for me to do (I hate over complicating things). I order enough milk through Amazon each month and the expense is the same. This helps me budget accordingly.

This same principle applies to you, dear friend. Don’t be unrealistic when budgeting unless you know for a fact you can save in a particular category. I don’t coupon, but many of you might so you may reasonably be able to say you’re going to spend $30 less on groceries this month.

I can’t say that, so I keep my grocery budget the same because I know how much food we’re going to eat. This is why it’s important to take your family into consideration when creating a budget. It allows you to set your expenses accordingly.

If you find yourself needing to cut expenses, you might want to check out some of these options to help you save more money.

Include your significant other and family

Your budget can’t be selfish. If you have other people in your life, realistically they can’t be excluded. Consider the needs of your spouse or significant other. If you’re not on the same page financially, make a great effort to at least get in the same chapter. Once you’ve done that, consider your family’s lifestyle and needs. This isn’t optional, so make it happen.

 

Plan for emergencies

If your budget doesn’t plan for emergencies, it’s destined to fail. If you account for all of your current expenses and forget to include car repair, a simple flat tire can throw your entire budgeting plan off. Include things like car maintenance and repairs in your budget, along with any auto insurance deductibles in case you have an accident.

Also, what if you lost your job or became ill and couldn’t work? Disability benefits (if you even have them) and severance (if your employer is so kind) will only take you so far. You need to have a fund designated for emergencies such as these. If you don’t, what’s the point in even having a budget?

 

Related Reading: 20+ Ways to Find Cash For Your Emergency Fund

 

Plan for unexpected/irregular expenses

Get ahead of life. Late fees, homeowners insurance, back to school, and unexpected travel due to family emergencies are not really unexpected. They are just a part of life.

All budgets need to include room for these types of events. It doesn’t matter how perfect your budget is, if you have no extra funds for travel due to a death in the family, you might resort to using debt to cover the expense. 

That isn’t the goal. The goal is to stay out of debt and create budgets that cover life. For other expenses like insurance or back to school expenses, take an average of what you’ve spent within the last year.

Divide your irregular/unexpected expenses by the number of paychecks you receive in the year and set aside that amount each pay period.

 

Related Reading: How to Start Saving: A Guide For Beginners

 

Choose a budget that works for you

Let’s briefly go over a few different budgeting methods.

 

50/30/20 Budgeting

The principle of this budget is to split your costs into categories – necessities, savings/debt, and life.  You take the amount of your take-home pay and split it up according to the following:

50 percent of your take-home pay is spent on your necessities. Necessities would be classified as housing, transportation, utilities, etc.  

20 percent of your take home pay would go towards savings goals and/or debt repayment.

30 percent of your take home pay would be spent on life. These expenses include entertainment, shopping, dining, cable, internet, groceries and other variable expenses.

This budget is not the business for everyone. If you’re anything like me, I can tell you that you would feel restricted using this type of budget. This budgeting method is ideal for someone who enjoys classifying expenses and doesn’t mind managing your budget more often.

Need more information on 50/20/30 budgeting? Check these articles out:

The Envelope System (Cash Budgeting)

This method of budgeting is good at helping someone with no impulse control. If you go to the grocery store to buy eggs and milk and come out with chicken, hot sauce, and B1G1 popcorn, this may be the type of system you need in your life.

The principle behind it is using cash only!  To make it work, you set aside the cash needed for your some of your variable and fixed costs and put them in envelopes.

When you go to the grocery store, you would bring along the funds designated for groceries. If you’re going to pay the gardener, you would use the envelope with those funds.

The only drawback to this method is that you can’t pay for everything in cash. Things like mortgages and other expenses would be left in your checking account for safe-keeping. You would only withdraw funds where you can reasonably expect to pay cash.

I don’t like paying cash and many people find the envelope system involves too much work. Like I said previously, if you’re having a hard time keeping your expenses in check, it could be worth a try.

Need more information on Cash/Envelope Budgeting? Check these articles out:


Reverse Budgeting

This budgeting method is aggressive for many reasons. First, if you have big savings goals and lower obligations, you might choose to focus on your savings first and let everything else do what it do.

What I mean by this is you have a goal to save $12,000 in one year for a down-payment on your home. You decide you’re going to set aside $1,000 of your monthly take home pay of $3,000. You take your savings off the top and force yourself to live on the remaining $2,000.

If you can do this, go on head with your bad self. I’m not hating, but it’s quite an aggressive approach  — one I can’t expect to carry out successfully yet.  A girl can dream, though.

Need more information on Reverse Budgeting? Check these articles out:

Zero-Based Budgeting

If you choose to use zero-based budgeting, you must account for every single dollar you spend. You are basically giving every dollar earned an assignment. You budget down to zero.

If you bring home $1,000 and pay all of your bills, account for all of your wants, and still have $100 left over, you have to give it an assignment.

The only thing I don’t like about this budget is that it’s not as flexible. When you have already appropriated all of your funds towards something specific and something unexpected pops up, you’d have to have money set aside for unexpected expenses or else you would have to readjust your entire budget.

If you find it hard to budget period, this one may be the first one you should try because it gives your money a plan. If you don’t have a plan for every dollar you earn, I guarantee you it will vanish into thin air.

This budgeting method also becomes very attractive if you have enough money to live off last month’s income. By using zero-based budgeting and living off last month’s income, you’re essentially on a journey towards defeating a paycheck to paycheck lifestyle.

Need more information on Zero-Based Budgeting? Check these articles out:

Bi-Weekly Budgeting (Half-Payment Method)

This budgeting system involves setting aside half of all your bills each pay period. Since I’m paid bi-weekly, this is a loose version of the budget we use. We’ve adopted this method to suit our situation and it’s one I would encourage. We basically total all of our expenses and divide it by 2. My husband receives 2 paychecks a month and I usually receive 2 paychecks as well (some months I receive 3).

Half of our expenses are automatically deposited into our household account from our first paycheck. The same applies to the second paycheck. Our payment arrangements are in sync with our pay periods and we keep a buffer in our account so we don’t have to worry about whether we’ve been paid or not. This system is really effective for us and I’ve never in 7 years of marriage had to worry about multiple payments coming out of our account before payday.

Also note: I rarely spend that bonus paycheck on stuff we don’t need. I use this to continue building our buffer or contribute to emergency savings. Use that 3rd paycheck that comes twice a year wisely!

Need more information on Bi-Weekly Budgeting (Half-Payment Method)? Check out these articles:

Put it on automation

Whatever budgeting system you decide to use, put it on automation. With modern technology, it’s easy to set up automatic payments and auto-deductions for your savings.

This eliminates the need to do everything yourself. It’s always a good idea to check for computer and human error if you have your bills and savings on automation, but you save time by not having to manually do it every pay period.

We currently have our savings automatically withdrawn from our household checking account at multiple intervals throughout the month. The majority of our bills are set up on automatic deduction, but I manually pay our mortgage, water, and power bill each month.

This arrangement isn’t ideal for variable expenses such as power or water because we sometimes have to transfer additional money into our household account to handle fluctuations.

 

Stick with it long enough to see results

Creating a budget that works for you involves some trial and error. However, it’s not wise to jump ship from one budget to another if you haven’t allowed enough time to determine if it actually failed.

One way to determine if you’ve got a budget that works for you is to allow enough time to achieve two short-term financial goals. If you haven’t gotten the results you want after around 90 days, change it up until you find the one that works best for you.

 

Wrapping Thangs Up

My goal for you is to leave here with enough information to be encouraged about setting up a budget that works for you. I know it’s easy to hate budgeting. Heck, I hate it. But it’s an essential component of your financial future. If your budget currently sucks, don’t be discouraged. Following the information presented will surely help you on your way to creating a budget that won’t fail.

 

Have you found the budgeting method that works best for you? If so, share with us and tell us the aspects of your budgeting system that compliments your needs!

 

 

*Part of Financially Savvy Saturdays on brokeGIRLrich, Disease Called Debt and Frame to Freedom*

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Latoya Scott
Writer/Creator
Latoya Scott is a personal finance writer and blogger for hire who loves talking about budgets and money. Her mission is to help women create better finances so they can live a carefree lifestyle.

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  • Aliyyah @RichAndHappyBlog May 16, 2016 at 11:44 am

    I mainly do reverse budgeting. The most important thing for me is hitting my monthly savings goals to reach my annual target. I care less about spending in any specific category. I am working on creating more of a mix with the other budgeting types you mentioned though.
    Aliyyah @RichAndHappyBlog recently posted…5 Reasons Your Net Worth Is Important And How To Track It For FreeMy Profile

    • Latoya S. May 16, 2016 at 11:49 am

      Me either. Obsessing over how much I spend in each category really does nothing but stresses me out. I figure if I have saved to cover unexpected expenses, emergencies, yearly bills, then I’ve done what I need to do. The rest of it I manage it on whatever else I need to do until the cycle repeats itself. I could stand to cut back in the food category though, lol.
      Latoya S. recently posted…How to Create a Budget That Won’t FailMy Profile

  • Amanda @centsiblyrich May 16, 2016 at 1:00 pm

    I don’t have any one, set budgeting method, but I would say I’m closer to reverse budgeting than anything else. I track expenses religiously. We automate savings and retirement accounts and live on what’s left, which isn’t always easy because I squeeze as hard as I can, leaving little to nothing at the end of the month. I know that, if needed, I have savings I can fall aback on, which makes this work without a ton of associated stress.
    Amanda @centsiblyrich recently posted…Proven strategy to help you successfully pay off your debtMy Profile

  • Latoya S. May 16, 2016 at 1:22 pm

    Same here, Amanda! As long as our savings goals are met and we have a roof over our head, clothes on our back, and food to eat, I feel I’ve pretty much satisfied that whole “adulting” thing. I always stress using a budget, but that can be any type of plan for your money that works for you. It’s not all about what specific system you use as long as what you’re using is helping you get closer to financial goals and not further into debt.
    Latoya S. recently posted…How to Create a Budget That Won’t FailMy Profile

  • Terri May 17, 2016 at 5:00 pm

    I absolutely love that you mentioned being generous with yourself in the budget. While I consider myself to be a frugal person, I don’t have a frugal hobbies. Dance classes aren’t exactly cheap. But I know that money well spent as it keeps my happy, healthy and motivated. Had I cut dance from my budget, paying of debts would be torture and near impossible. so I do what I can to adjust my budget accordingly so I can afford to dance my heart out!
    Terri recently posted…I’m Becoming a Points Traveler Without a Credit CardMy Profile

    • Latoya S May 17, 2016 at 5:33 pm

      I hear that! It’s definitely important to do something for yourself. Getting out of debt ain’t promised, neither is tomorrow. Everyone should plan for tomorrow, but still manage to be happy for today!

  • Dr. J @ Medschool financial May 18, 2016 at 12:58 am

    Great list of tips to make progress. I am fan and advocate of people starting small and meeting yourself where you are at becuase consistent and disciplined effort will add up over time. Thanks for sharing.

    • Latoya Scott May 18, 2016 at 8:02 pm

      You’re welcome, thanks for reading!

  • Pamela May 18, 2016 at 7:14 pm

    These are really great pointers. My husband and I use a variation of these options when budgeting. Most especially the envelope system and the bi-weekly payment method. All of our expenses are divided by 4 and we pay them off that way. Because I get paid semi-monthly and he gets paid bi-weekly many months we get paid each week which is nice and much better for budgeting in my opinion.
    We always do zero-based budget. That’s the only way we budget and that seems to be working for us. When we ere paying off our student loans however we just paid for the bare necessities and used the rest of the money to clear the $120k student loan in 2.5 years. It was a very restrictive budget but that was what we intended for those almost 3 years.
    Now that we have some financial breathing room, its nice to use the money for other things.

    • Latoya Scott May 18, 2016 at 8:01 pm

      Woohoo on the debt payoff, that’s amazing! I can only imagine what it would be like to apply those payments towards wealth building. Folks such as yourself inspire me to keep moving forward. Thanks for sharing your story!

  • Catherine Alford May 19, 2016 at 3:49 pm

    Great post! I love that you explained the different types of budgets and linked to some more examples. Love it!
    Catherine Alford recently posted…3 Ways To Stay Calm and Happy During a Major Life UproarMy Profile

  • Stefan - The Millennial Budget May 19, 2016 at 10:38 pm

    Nice post Latoya! Still in college so my budget only goes as far as my monthly budget goes haha. I try to keep spending to $900 a month (this includes rent and utilities). If I had to fall under a category it will be reverse budgeting as I try to put away $200 a month into stocks. Looking forward to the next post!
    Stefan – The Millennial Budget recently posted…Three Budget Busters and How to Avoid ThemMy Profile

  • Chonce May 20, 2016 at 11:54 am

    Planning for the unexpected is a big one for me. I have unexpected expenses every month so I don’t use zero sum budgeting yet because I know I might have to spend a little extra money after I pay all my basic expenses and make debt payments and savings contributions.
    Chonce recently posted…Do You Have Any of These Money-Saving Ingredients in Your Fridge?My Profile

    • Latoya S May 20, 2016 at 10:08 pm

      Same here!

  • FinanceSuperhero May 20, 2016 at 12:50 pm

    Such a comprehensive roundup of budget options. Great job, Latoya.

    Personally, I favor the zero-based budget because I have been practicing it for years and can manage this system very efficiently.

    Also, I am surprised that so many people hate budgeting, as you said. I know I’m a nerd, but I greatly enjoy it.
    FinanceSuperhero recently posted…What Are You Teaching Your Kids About Money?My Profile

    • Latoya S May 20, 2016 at 10:08 pm

      Thanks:)

  • Ruth Curcuru May 21, 2016 at 1:40 pm

    I’d say the most important thing is to set up a lifestyle you can afford. I don’t care if the bank says you can afford a house that costs $X, look at ones costing 75 or 70% of X. If you can’t pay cash for a car, consider whether you need one that nice. Once you have the big bills taken care of,don’t be stupid. Eating out once is a while is fun, eating out every day, well, it is stupid. If your lifestyle is in keeping with your paycheck, you shouldn’t have to track every penny to reach goals.

  • Becky@Frametofreedom May 21, 2016 at 10:31 pm

    Great post Latoya! Very comprehensive analysis of different budget strategies! We use the same method as you guys and we find it works very well for us! I like your advice of making micro goals. That helps to make it seem not so overwhelming. Great Post!

  • Cara @ Fashionably Frugal November 29, 2016 at 9:31 pm

    I really like using the cash envelope method for anything that I use cash on, groceries, gas, eating out, etc. Everything else is automated payment or is put aside for a specific purpose, so even if I slip up somewhere it never is too bad of a deal. I like that you started this post off with the advice of not being too strict. I think that is so often the cause of failure, you make a too tight budget and when you slip up it feels like a big failure and you just trash the whole thing.
    Thank you for sharing these, it’s encouraging to know that other people struggle with their budgets too and it’s not just me.
    Cara @ Fashionably Frugal recently posted…Stocking Stuffers for MenMy Profile

    • Latoya Scott November 30, 2016 at 12:21 am

      Definitely! You’re welcome, Cara:)

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