If there is one aspect of personal finance that most people struggle with, then it is creating a feasible budget and sticking to it. Often the problem is that you have not been entirely honest with yourself while making the budget. This means that you do not have a realistic plan for your spending. However, there are a number of steps that can be taken to ensure that the budget you devise will really work.

Steps 1: Record All Income And Expenses

The first step on how to make a budget that works is to carefully record every single transaction you make over a set period of time – a month probably makes the most sense. Carry a notebook with you to record all expenses and save all of your receipts. It is important to record and track every single penny.

Be specific in recording your spending. Rather than recording how much you spent in a particular store, you must note what you actually bought. This is especially important if you buy items from multiple categories. One example might be that you have spent $50 in a department store which needs to be split between food and  new household appliance.

A great way to track such expenses is to use spreadsheets. You will be surprised at how much money you are wasting every month. Seeing it all in black and white can help you to figure out where you are overspending. For example, do you really need to spend $250 on eating out?

Steps 2: Record Your Income And Necessary Expenses

Once you have an idea of your spending habits it is time to get down to the business of agreeing on your budget. The first step is to write down the net income brought into your household each month. You should then write down essential expenses that are paid every month. This will include things like rent, credit card payments, loan repayments, insurance and other regular payments. Your tracked spending from the previous month should help identify these.

Once you have the amounts of your regular monthly payments, you need to subtract them from your income. This gives a total amount for you to work with for your other expenses such as groceries and transport.

Step 3: Make Necessary Adjustments

If you find that your income is greater than your expenses, then you are in a great position. You can begin to put a little into a savings plan for the future. However, if like most people you find that your expenses exceed your income then it is time to make some adjustments.

There will be some obvious place to save money, like the large eating out bill noted earlier. There will also be plenty of other places that you can trim a little off of your spending. Groceries are one of the main areas that people overspend on. However, it is important to be realistic. It will not be possible to drop from spending $300 on groceries to just $100.

Step 4:  Stick To Your Plan – But Be Flexible

Once you have created your budget it is important that you follow it. This is by no means easy, and there will be times when you screw up. However, if you remain focused on your budget you will continue to move closer to your financial goal. It is important to have a little flexibility in your budget. At times there will be unexpected expenses or the cost of things such as fuel rise. This means that from time to time you will need to adjust your budget.

The key to a successful budget that really works is to be realistic in setting your budget figures. It is also important to make sure that you are willing to stick to it as much as possible. However, it is not set in stone and there is a little flexibility. If the budget is not working out then you can revisit it and make some changes.

Getting Started…

Now that we’ve covered the basic 4 steps to making a budget that works below is a simple calculator that you can use to help you get started.

[fmecalc cid=”61″ w=”600″ c=”0″ s=”3″ gs=”1″ incd=”1″ lid=”V1-61-10-12-25″]


Hugh Tyzack is the founder and managing director of loansforbad-credit.co.uk, a company which provides loans including logbook loans to individuals who have bad credit. More details are available on his website or you can follow him on Twitter @badcreditloans8 and also on Google+. When he is not working, Hugh listens to music and plays the piano.