This is it: 2019 is the year you are going to make and stick to a budget. No more wasting your hard-earned cash on weird gadgets you see advertised on Instagram; it’s time to save those funds for a vacation—and maybe even a down payment on a home someday. The only problem? The idea is much simpler in theory than in practice: reaching a financial goal for the year takes more than just vowing to “cut back.” So here’s how to actually get there.
Review your past spending, then plan future spending
Before planning your future saving, review your past spending. “We generally underestimate how much we spend when we’re making estimates,” said Stefanie O’Connell, author of The Broke and Beautiful Life. “So in order to keep our budget grounded in something that’s going to be realistic and something that we can stick to, we have to start with what our actual costs are.” O’Connell recommended reviewing three months worth of past statements, and divide what you spent into columns such as necessary expenses (like housing, food and transportation) and discretionary (like entertainment, vacations and clothes). Or, create columns for recurring expenses (like rent, loan payments and Netflix) and non-recurring (like holiday gifts and celebrations).
Now, create your 2019 budget starting with those necessary expenses and comparing that sum to your monthly income. The gap between the two is how much you have for everything else. But before you get to all the fun stuff, don’t forget to include your savings, debt-paying and investing goals (if you have them). “[Put] those...into your budget right after you put in the necessity expenses each month,” O’Connell said. “Then and only then, start to see how much room you have left for discretionary expenses and variable expenses that are not necessities.” Use the last three months’ review to anticipate how much you’ll spend in discretionary areas (multiply it by four to get an estimated look at a full year).
In terms of events you know are coming, but don’t necessarily know how much they’ll cost, like friends’ weddings and gift giving, O’Connell suggested looking to last year’s “irregular expenses” spending and make an annual projection based on that. You can either divide the yearly spending by 12 and include it in your monthly budget (if you don’t spend what you allocated in a given month, roll it over to the next), or allocate it to the specific months when you expect you’ll need it.
Of course, there are some expenses you simply don’t know you’ll incur. For those, O’Connell recommended creating an emergency savings fund. Plan to include in your budget putting away a certain amount of your paycheck each month to work toward a goal of having at least one month’s worth of expenses (but ideally three- to six-month’s worth) saved in an account you can easily access and dip into if needed.
Find what works for you
Some people may thrive by allocating every extra dollar in their budget to a specific purpose or category—like dining out, movies or clothes. Others might find that restrictive, O’Connell noted, and would rather have a general monthly “fun fund” in their budget that incorporates all of those things. “There are so many ways to make a budget work,” she said. “The key is trying to find a system that works for you based on your personality type and the way you work, and knowing that you might not succeed the first time around but that doesn’t mean you can’t eventually try another system.”
Hold yourself accountable
Holding yourself accountable is key to achieving any goal, and budgeting is no different. Record your detailed spending as you go each month—even if you go over your budget allocations. O’Connell personally uses Mint and Personal Capital (as well as her own spreadsheet) to track her budget, spending and investments, but if apps or high-tech software aren’t your thing, you can keep it simple. “Pen and paper is fine,” she said. “I know some people use their day planner also as a spending tracker.”
The key is that you’re holding yourself accountable in some way, and that act of writing or typing your spending “in and of itself is going to create a lot more mindfulness around your money and financial choices,” O’Connell said.
Cut yourself some slack
No one is perfect; even if you thoughtfully set aside money for irregular expenses, it’s possible you’ll get off-track at some point during the year. If that does happen, though, remember that you can still get back on track. “We have to give ourselves permission to make mistakes...we have to give ourselves flexibility for life to happen because life happens,” O’Connell said. Remind yourself of that fact, and don’t allow “that shame to keep you from restarting the process,” she added.
Remind yourself why you’re doing this
You may be enthusiastically tracking your spending in January only to find that in May you are over it and just want to have some fun. To help prevent yourself from losing focus, O’Connell said to “attach meaning to the money you’re budgeting. It’s really hard to stick to things that feel restrictive if we don’t remember why we’re doing it.”
One way to do that, O’Connell noted, is by creating visual reminders. Print out a picture of your dream destination and put it in your wallet to remind yourself that the budget your’ve made is to help you save for the vacation you’re planning; or use a picture of your family as your phone background to help you maintain focus on building an emergency fund for them. “That will remind you what you’re saving for,” O’Connell said. “A budget is really a tool to get the things you want; it’s not something that’s designed to restrict you, even though it sometimes feels that way.”