Achieve Savings: How to Create a Realistic Budget

Do you struggle to effectively manage or track your expenses? Do you know how much is coming in, and how much is going out each month? If you don’t, or if you have tried a budget but found it too difficult or messy, I may be able to help.

I will start by saying, my budget – really, the way I track my expenses – has evolved over time. I have been doing it since 2016 and have made a number of tweaks to the process along the way. Thus, there is no single right way to do it. Figuring out what works for you is ultimately what matters, and I aim to provide you with a foundation that I believe you can build upon.

Let’s start with the basics.

Income

How much money are you paid after taxes and retirement savings are deducted? This is the amount that is deposited directly into your checking account, not the “Gross” amount of your paycheck. We will call this “Net Pay”.

Example:

$2500 Gross Pay (and you are paid 2x per month) = $5000/Month

$2000 Net Pay (after taxes/retirement savings) = $4000/Month

Expenses

Now that you know the total amount of available dollars you have to spend, you can plan how much to spend in each category. The total amount of spending needs to be less than $4000.

With the above example, a budget was created that leads to $3500 in total spending, which is $500 less than your Net Pay. Perfect! Now, let’s say you hit your spending targets in most categories, but had slightly higher “Shopping” expenses and a medical bill caused you to exceed your target in the “Health” category. Your Expenses relative to your Budget ended up as follows:

Despite higher costs in two categories, you stayed $100 under budget! And because the budget you created is $500 less than the $4000 coming into your account each month, you have a built-in savings mechanism. As an added bonus since you came in $100 under budget, you have even more savings!

$4000 Net Pay

-$3400 Expenses

=$600 Savings

Feel free to modify the spending categories that I have created. Heck, you don’t even need Excel to manage your budget (you can use paper and pencil). How you track the numbers is up to you. The most important thing is that you actually create guardrails for your expenses and stick to that plan. And when you do, you will actually save money, pay off debt and invest. All success in personal finance follows this critical path:

controlling your behavior and managing expenses

which leads to…

saving/investing/paying off debt

When you master this, you can begin to pay yourself first.