Forming Healthy Money Habits: 8 Tips for Creating a Budget You'll Stick To

People who have healthy spending habits are more likely to reach their financial goals than those with unhealthy habits. One way to encourage smart decisions about money is creating a budget that helps you stay within your means and make room for long-term planning.

Here at Addition Financial, we believe that budgeting is necessary for our members at every income level. If you’re just starting out in your career, you may need to minimize spending to avoid debt. Even if you’re earning a comfortable monthly income, budgeting will help you to pursue your most important financial goals. With that in mind, here are eight tips to help you create a budget you can stick to.

What Type of Expenses Should I Consider in My Budget?

Before you create a personal budget, let’s review the types of expenses that should be included. It’s essential to account for all significant and predictable monthly expenses because that can help you prepare for variable expenses. We all have an unexpected expense or two at times. Proper budgeting can make that prospect a lot more manageable. Here’s what you should include:

• Rent or mortgage payment
• Utilities
• Travel/commuting expenses
• Groceries
• Insurance payments, including renters/homeowners insurance, car insurance, health insurance, etc.
• Debt payments
• Taxes
• Retirement contributions

Every debt payment and monthly saving goal should be included. People sometimes make the mistake of excluding savings goals from their monthly budget. Including payments to yourself is one of the best ways we know to prioritize savings. It’s also a crucial step if you don’t yet have an emergency fund.

8 Budget Creation Tips 

Any budget you create must be specific to your financial circumstances and goals while being suited to your spending and saving style. Here are eight tips for creating a budget that will work for you.

#1: Create SMART Budget Goals

Before you create a budget, we suggest setting a main financial goal to help you choose the right budgeting method for your needs. For example, your primary goal might be saving for a down payment on a house or paying off your student loans. You can have multiple goals, and if you do, make sure to decide which SMART money goals are the most important.

#2: Choose a Budgeting Method That Works for You

There’s more than one style of budgeting. You’ll get the best results if you choose one that aligns with your spending style and goals. Some examples include the following:

• The 50/30/20 budget: A simple budgeting method that puts 50% of income toward necessary expenses, 30% to discretionary spending and 20% to debt and savings.
• The pay-yourself-first budget: This budget focuses on debt repayment and savings to help people improve their long-term financial prospects.
• The zero budget: This budget style accounts for every penny, so that your monthly net income minus your expenses equals zero.
• The envelope system: This cash-based system calls for putting cash into envelopes in each spending category. You spend only what’s in the envelope, although you can borrow from other envelopes if you need to.

If you struggle with spending, the envelope system might be a good choice, whereas if your main goal is to pay off debt, you might prefer the pay-yourself-first option.

#3: Budget to Zero

We already mentioned the zero budget, but even if you choose another type of budget, we suggest budgeting to zero. What we mean by that is that you’ll account for every penny you earn. If you spend less than anticipated, you’ll make extra debt payments, save the money or invest it. At the end of the month, everything should zero out and you’ll start fresh in the new month.

#4: Start with Your Most Important Expenses

Everybody should create a budget with their most important expenses in mind. These should include needs such as rent, food and utilities; debt repayments such as credit card debt or student loan debt; and savings for a down payment on a house or a new car. Once you have these expenses covered, you’ll know how much you’ve got left for other spending categories.

#5: Differentiate Needs and Wants

When we talk about budget priorities, we’re talking about needs and not wants. You need to pay your rent and utilities every month. You don’t need to go out to dinner twice a week. Your needs should be the first things to go into your budget and then, you’ll be able to evaluate whether there’s room for the things you want.

#6: Prioritize Saving 

One of the highlights of the pay-yourself-first budget is that it prioritizes financial health. Whatever method you choose, we suggest prioritizing saving money in whatever way makes sense for you. Some examples include creating an emergency fund, saving for a big purchase or putting money aside to invest for your retirement.

#7: Make Debt Repayment a Priority

Whether you’re carrying credit card debt or student loan debt, repaying it should be high on your list of priorities. Carrying some debt is fine but not if it’s negatively impacting your credit score or putting your financial goals out of reach. You can choose the debt repayment method that works for you and make a plan to pay off that debt as soon as possible.

#8: Expect the Unexpected

Any budget should include a miscellaneous category to make room for unanticipated expenses. At the end of the month, any money that’s left in that category can be saved, invested or put toward paying down your debt.

What Are Some Effective Strategies to Help Me Stick to My Budget?

Here are a few money management tips to help you stick to your budget once you’ve created one that works for you:

• Use a budgeting calculator: There are tons of free online calculators you can use to enter your monthly expenses and get a handle on your spending.
• Save and organize bills and receipts: When it’s easy to put your hands on your electric or cable bill, it’s easy to stick to your budget. We suggest recalculating your average expenses periodically and any time your bill changes.
• Use a budgeting app: Budgeting apps put your budget within easy reach on your phone. You can use your saved bills and receipts to calculate averages for things like utilities and groceries.
• Buy a spending or budget planner: If you prefer pen and paper, you may want to buy a budget planner to track your spending and saving.
• Make a plan for extra money: There may be months where you have extra money to spend, whether you have lower-than-usual expenses or earn something extra from a bonus or side gig. Having a plan for what to do with it will help you avoid overspending.
• Take time to think about purchases: Impulse purchases are an issue for some people. Building some breathing room into your buying decisions can help you decide whether you really need that thing you want to buy or if the money would be better spent elsewhere.
• Find an accountability partner: If you struggle with spending and saving money, then you might want to ask a friend or family member to be your accountability partner. You can run purchases by one another and get support when you need it.
• Set budget challenges: Those who like competition might want to create one or more budget challenges. For example, you might set a zero-spending challenge for a month where the goal is to spend money only on necessary items.
• Identify unnecessary spending: A lot of us spend money on subscriptions we don’t use. Identifying and canceling these can help you save money every month.

Choose one or more strategies that can help you overcome budgeting or spending issues and see how much they help.

Tools and Resources to Help with Managing Your Budget

In addition to money management tips, here are some specific tools and resources that can help you manage your budget:

• Addition Financial’s free budget calculator can help you categorize your spending and create a budget.
• There are tons of budgeting apps to choose from. Mint, which we’ve recommended before, is going away. Some others to try include YNAB and EveryDollar for zero budgeting and Goodbudget for envelope-based budgeting. Be advised that while some of these apps are free to use, they also offer paid services — so be weary of in-app payments.
• Bill management apps are useful if you’re spending money on subscriptions you don’t use. Rocket Money (formerly known as Truebill) will even cancel unwanted subscriptions for you.
• A high-yield savings account like Addition Financial’s Money Market or Growth Plus Money Market account allows you to take advantage of compounding interest to grow your savings.

These tools are just a few of the many that are available to help you create a budget and stick to it. You may also want to consider finding some investment research tools if you’re putting money aside for retirement.

Get Your Spending Under Control with Addition Financial

Healthy money habits start with effective budgeting. The 8 budgeting tips we’ve included here, together with budget management strategies and budgeting tools, will help you create a budget. Stick to it, and you’ll be able to turn your most important financial goals into realities!

Are you looking for financial tools and guidance to help you achieve your financial goals? Addition Financial is here to help! Click here to read about the benefits of credit union membership and join today.