6 Steps To Creating a Budget That Helps You Reach Your Goals


For many people, it’s practically a dirty word.

But budgeting also can be an amazing tool to help you achieve your goals in life.

Do you want to start your own business, own a home, or travel the world?

Each of those requires an investment of time, money and planning.

The best way to get started on the journey to achieving your goals is by building a budget.

Here’s how to do just that.

6 Steps To Creating a Budget That Helps You Reach Your Goals

1. Set priorities

The first step to a workable budget is to carefully consider and prioritize your goals.

To make budgeting work, it needs to tie in to what you want to do in your life.

Therefore, BEFORE you deal with the numbers, set and write down goals.

If you’re in a relationship and/or have a family, do so with your spouse or partner and the rest of the family.

Your goals might include taking a family vacation to Disney World, being able to retire at a certain age, and making sure you have time to train for a marathon (or maybe just take a daily walk).

Write them all down, and then build the budget with the goals in mind.

As you go, you will likely have to stay flexible and make some modifications, but that’s OK.

Whether it’s driving or budgeting, it’s hard to get somewhere without knowing where it is you want to go.

2. Choose your budgeting tool

Before you dive in, take a few minutes to think about the tools you’d like to use on your budgeting journey.

What works best for you?

Think about it…Some mechanics like to work in a spotless, state-of-the-art facility, while others prefer the comfort of having every tool close to hand and never worrying about cleaning up grease.

Similarly, when it comes to keeping track of your money, you have many tools from which to choose.

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Plenty of software is available (including free online apps and programs); a spreadsheet or pencil and paper can work just as well.

Some people are glued to their phones, but a stack of envelopes has helped people budget for generations.

Choose what’s most comfortable for you.

3. Create your budget

Now it’s time to get down to the nitty-gritty.

Budgeting can be broken down into a series of simple steps.

Take your time, and don’t leave anything out.

What comes in: Add up all monthly net household income.

Determine the amount you have left after taxes and other paycheck deductions such as health insurance premiums and retirement plan contributions.

This number tells you how much you have to spend every month.

Include all reliable income, such as child support or a roommate’s rent payments.

What goes out: Now, list your ongoing monthly expenses in four categories.

Add these to get a total on your cost of living:

  1. Fixed expenses – These stay the same every month (such as mortgage or rent payment).
  2. Variable expenses – These change each month, but are “must-buy” items (such as food, gas and medicine).
  3. Savings– Include this as a mandatory “expense” in your budget, no matter how large or small the amount you save.
  4. Spending money

In savings, prioritize creation of an emergency fund in the budget.

Ideally, this fund will have enough to cover at least six-nine months of living expenses.

Start small (even $50-100 each month will add up) and work up gradually if you need to.

An emergency fund should be in a savings or money market account where funds can be withdrawn without undue complications.

Make sure to include a line item in the budget for credit card debt (if you carry any).

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This should be a fixed expense.

Paying off credit card debt at typical interest rates effectively makes an investment that returns 20 percent or more per year – undoubtedly one of the best investments anyone can make.

4. Find out how you’re doing

Here is some math comes in.

Don’t worry – It is no harder than elementary school math, and calculators are allowed.

First, subtract expenses from income.

If the resulting number is negative, you must face the facts and find a way to cut your expenses or increase your income.

Take a look at your expenses as a percentage of income.

Divide the figure for each of the following expense categories above by your income to determine expenses as a percentage of income.

A good rule of thumb is that expenses should break down as follows:

  • Home: 35% (many experts recommend only 28%)
  • Transportation: 15%
  • Debt: 15%
  • Savings: 10% (must include building an emergency fund – see below)
  • Other: 25%

These are only general rules of thumb.

They will differ for each individual or family.

Someone who lives in Manhattan, for example, likely will have a higher percent for the home category than someone who lives in a suburb of Kansas City.

However, the New Yorker’s transportation expense (and percent of income) may be substantially lower.

Conversely, the person who lives in the suburb may have a lower housing cost (and percent of income), but higher transportation expenses if s/he has a long driving commute or multiple car payments.

If you enjoy this article, check out our collection of budget quotes for more abundance.

5. Evaluate your current situation

As mentioned above, if you are spending more than you earn, you have a major problem.

You need to get the two numbers in alignment, and quickly, or you will find yourself falling deeper and deeper in debt.

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To get your finances into a healthier state, you may need to take steps such as:

  • Cutting unnecessary expenses;
  • Asking for a raise at work, taking on additional assignments and responsibility, or finding a higher-paying job;
  • Adding a side job to earn additional money.

6. Make a spending plan that will help you meet your goals

Whatever your current situation, now is the time to make a spending plan to take you forward to achieving your goals.

  • Plan spending. At the beginning of the month, write down how you will spend your money that month.
  • Track spending. Hold on to receipts, and keep a spending log. Many people who’ve previously been unsuccessful at sticking to a budget find it eye-opening to see how much they spend each day. It’s very similar to writing down everything you eat when trying to lose weight.
  • Evaluate your progress. Each month, take a close look at your budget to find out where your money goes and to take a hard look at where you can cut back. It is very cliché to ask if the question, “Can I do without that expensive cup of coffee as I head into work, and replace it with the free coffee at work?” Yet this is the type of disciplined act that will help someone stay on budget.

It also is a good idea to meet with your partner or family, as applicable, every month to discuss your progress.

These meetings can help you stay motivated toward your goals.

Money can be a powerful tool – and it can be a powerful headache if you let it control you, instead of the other way around.

Building good financial habits, including a budget that works, can be hard work.

But it also offers many rewards, both financial and in peace of mind that you are the master of your money.

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