How to make a Personal Budget… and stick to it

Why should you even bother to make a budget? “Budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt.” (source

However, not everybody has a budget because they don’t know where to begin… it can be a daunting task. To help you out, I’ve created a simple road map you can use to create an effective budget (effective = reasonable, achievable, and measurable):

  1. Determine your goal(s). It could be as simple as “save at least $5,000 per year toward retirement” or “eliminate your credit card debt in two years”. You want your goal(s) to specific and measurable so that you know when you get there. Your goal(s) should have a dollar amount and a time frame in order to meet this criteria.
  2. Determine how much you’re earning and how much you’re spending going back at least one full year. Most major banks/credit card companies allow you to link your on-line data to websites like that will help you summarize your data with relative ease.
  3. Use the data from step #2 above to prepare a projection that goes out at least one year out showing what would happen if you kept spending at your current levels. You can do this using a spreadsheet program like Excel or Google Sheets (free). This is your starting point… and if you’re meeting the goal(s) you set in #1 above, then you’re done and this is your budget. If you’re not meeting your goal(s) set in #1 above, then you’ve got some work to do.
  4. Separate your spending into two categories. Things you can control in the short term or discretionary spending (e.g., recreation, restaurants, and groceries) AND things you can’t control in the short term or fixed spending (e.g., mortgage/rent, car payment, and taxes).
  5. Determine how much spending you’d have to cut in order to meet your goal(s). Use that amount and reduce your discretionary spending in whatever categories that make the most sense… e.g., reduce spending on restaurants by $100 per month and reduce spending on vacations by $500 per year. The result is a new listing of your discretionary expenses that will help you meet your goal(s) or your personal budget. If you can reduce your fixed expenses (e.g., by refinancing your mortgage) include those savings in your personal budget as well.

So now you’ve got your personal budget. How do you stick to it? It is definitely possible with discipline and proper tracking. Here’s a few tips to help you out…

  1. Open a new checking account with a debit card attached to it (do not use a credit card).
  2. Deposit an amount equal to your monthly spending budget at the beginning of each month.
  3. Use this checking account and debit card to pay all your budgeted expenses… when you have close to zero dollars left in this account, you know you’re about to go over your budget.
  4. Use software and/or apps for your smart phone to track your progress toward your budget on a daily basis. is a great, free tool for this purpose.

The key is to set an achievable budget that meets your realistic goals and tracking your progress towards those goals. If you’re doing that, you’re doing it right.

Contact my office at 734-377-3641 or if you have any questions or would like help in setting up your personal budget.


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