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• Study your spending habits and identify what expenses you can cut out to create your budgeting plan.
• Make lifestyle adjustments and truly commit to saving money so that you will be successful with budgeting.

If you've never created a budget before, the task can seem daunting, especially if you are trying to dig yourself out of debt or become financially stable. Ironically, when you’re just starting out or digging yourself out of debt are the times when budgeting is most critical. 

Why Should I Budget?

Even if you aren't currently facing money problems, it takes just one bad day or unexpected expense (like a car or house repair, medical bill, etc.) to find yourself scrambling to pull together funds. With budgeting, you can have a safer financial future.

What Is Budgeting, and How Do I Start?

Knowing what a budget is and understanding how to budget are two very different things.

A typical definition for budgeting sounds something like, “creating a spending plan for your money.” Not only is this definition vague, but it sheds little insight into how you should begin creating your own budgeting plan.

The first thing to add to this definition are words to describe your budgeting plan, such as measurable, actionable and realistic.

• Measurable is easy to understand because we’re talking about saving money. You can easily see how much you planned to save and how much you actually saved. some budgeters forget to include the element of time. How much do you plan to have saved after X months?
• Actionable is where a lot of so-called budgeting "plans" fall apart. You may write your expenses down and calculate how much disposable income you have, which then allows you to determine how long it will take you to afford X. Unfortunately, this is more of a wish-list than it is a budgeting plan. Actionable means having specific tactics or actions in mind that will further your goals and financial saving efforts.
• Realistic is also an important word to include because, let's face it, we're not always the most realistic when it comes to our spending aspirations. You may dream of owning an Italian sports car or a beach house in Cabo, but that might not be realistic with your current income. Realistic also includes the element of time. You can't save for a cruise vacation overnight. Most budgeting plans are designed for the long term. When you make a plan, you have to give yourself a reasonable amount of time to see it through.

By including these criteria in every budget plan you make, you’ll have a much higher chance of successfully following through with the plan. Now we’ll move on to other guidelines that make the foundation of your budgeting plan.

When Just Starting Out Consider All Your Monthly Expenses, No Matter How Small or Unnecessary

The first step is to calculate your expenses. How much do you spend on a monthly basis and what do you spend your money on? Expenses can be split into two categories: mandatory (or unavoidable) and discretionary (or manageable).

• Mandatory or Unavoidable expenses are those that you must pay each month. Some examples are insurance, car payments, rent, mortgage, loan payments, utilities and so on.
• Discretionary or Manageable expenses are things that you don’t necessarily need but want because they are part of your routine/lifestyle. Some budgeters divide these costs into various categories, like an entertainment budget, a beauty budget, a hobby budget, the “I need a Starbucks coffee before I see my boss in the morning” budget and so on.  

The primary difference between the two types of expenses is how static they are. Short of renegotiation, you can't change how much you pay for many of your unavoidable expenses. Manageable expenses, on the other hand, can be directly affected. For example, you can cut the Starbucks coffee out of the routine on Fridays. Alternatively, you can choose to go to the movies only once a month, instead of your regular bi-weekly trip

Some expenses blur the line and are both unavoidable and manageable.

The two biggest examples of this are transportation and food. Not only does everyone have expenses for food and transportation, but almost everyone subconsciously budgets them. You may never think about how much you spend on your must-have morning beverage each month or how much you’ve spent on drinks by the end of Friday night, but you probably pay attention to your grocery bill or how many times you fill your gas tank in a week.

While these kinds of expenses are unavoidable — we have to eat, and travel for work and errands — they can also be managed.

• Instead of driving to work, carpool or take a cheaper form of transportation.
• Scale your grocery budget down and make smarter decisions like eating out less, or buying fewer prepared foods. 

You may not even realize how much you spend and on what and where you spend it. Before you draft any budgeting plan, take a month and study your spending. Write down and keep track of everything. Today, there are lots of mobile apps to use for this; many will even help you budget too!

Compare Your Monthly Expenses to Your Monthly Income

At the end of your month of measured spending, you will have a complete idea of how much money you are spending and where it has gone. Now, compare that number to your monthly income (i.e., what your "take home pay") and you will see how much you’re saving and how much you’re capable of putting towards your current financial objectives.

From there, you’ll be able to calculate how much time it will take you to meet your savings goals. If you need to speed the process up and save more, then you should examine your current expenses to determine where you can cut spending. There are two ways to do this.

• Typically, people look for the one or two areas that are costing them the most because they can be the easiest to cut. It's a bit like going on a diet, just with your money. You have to cut certain foods (expenses) out of your diet if you want to lose weight (save money). And, the more you cut, the quicker you achieve goals.
• The other strategy is to cut a little bit of spending here and there, like skipping that one cup of coffee on Fridays. Each small spending cut might not seem like much, but they add up to make for some genuine savings.

Ultimately, you should cut what makes the most sense to you and for your lifestyle.

If time isn't an issue and you only want to budget for the sake of creating a savings safety net, there are some different opinions on how much you should put into savings each month. Some people recommend putting at least 20 percent of monthly take-home pay away, while others suggest only 10 percent.

Again, it is a matter of what's comfortable and manageable to you. You can always start small at 5 percent and grow as you become more certain. After all, having even a small amount of savings is better than none at all.

Monitor Your Budget and Adjust Your Lifestyle to Stay on Track

Budgeting isn't just about making a spending plan and sticking to it. It's also about making lifestyle adjustments. While your budgeting plan is certainly the roadmap to achieving your savings goals, there are a lot of other changes that can help the trip go a little smoother. Here are some things you should be aware of with any budget.

Closely watch the grocery bill.

One of the biggest sources of overspending is food. Even if you rarely go out to eat, you could still be overspending at the grocery store. There are several ways to master the grocery store to save money.

• Always come to the store prepared with a list, and stick to that list in order to avoid impulse buys.
• Avoid prepared foods at all costs; they are overpriced and only good for a single meal.
• Take advantage of items on sale. If it is something you eat often, don't be afraid to stock up if the savings are good enough.
• Plan your meals out strategically so you know exactly how long and far you can stretch your grocery store budget.

Budget to fit your lifestyle, not to make yourself miserable.

Some savers jump head-first into extreme budgeting, rather than getting their feet wet. Not only does this make life miserable, but it becomes very hard to stick to a plan. Instead of making immediate, extreme lifestyle changes on how you spend money, make small adjustments over time. This will help you acclimate to what it's like to spend $100 less at the grocery store each month or only having $50 to spend on entertainment. 

Sort through and prioritize your debt.  

If you owe money to multiple sources (as in more than one credit card company or lender) and paying off your debt is a goal of your budgeting plan, make sure you focus on the sources with the highest interest rates first. This will cut down how much interest you pay in your lifetime. This is an especially good tactic for people just coming out of college with many different student loans from the same lender. Many of these loan companies will apply any payments evenly to all the loans you’ve taken out with them, but not every loan has the same interest rate. Instead, ask for the money to be used to pay off the highest interest loans. In the long run, you’ll end up paying far less in interest.

Always plan for overspending.

Budget for going off your budget. Whether you want to call it a cheat day, a moment of weakness, or something else, you have to learn to accept that you will make mistakes. We all come across things that we simply have to buy immediately. It's important to understand that indulging in an impulse buy here and there is okay, as long as that purchase is modest (sorry, Italian sports car!) and you don't make it a habit. Some budgeters scrap their whole plan after just one impulse buy because they think their plan is ruined. It's better to accept a setback and forge ahead than to abandon your efforts altogether.

Practice the Art of Self Discipline With Your Money

Now that you've got your plan together, set yourself up for success with these tips on self-restraint and the right support.

Cash is king.

Using a debit or credit card is more convenient and often easier than carrying cash. But, it's also easier to overspend when using plastic instead of green. If you're going out with friends or going shopping, decide how much you want to spend, bring that amount in cash and leave the cards at home. You'll only be able to spend the amount you brought with you, resulting in no impulse buys or accidental overspending.

Tell your friends you are trying to save money.

This isn’t always the most comfortable thing to do. A lot of people don’t like talking about their finances, especially if they are having money problems. But, letting others know about your budgeting plan will make it easier to suggest cheaper places to eat and drink if you are going out, or, better yet, you can convince them to stay in for dinner. Having a talk with friends and family often means you don’t feel as compelled to spend a lot to keep up appearances or to go out every time they make plans. Some may even ask for your advice about their own budgeting situation!

Commit, Commit, Commit.

When you truly commit to saving money and curbing your ending, not only will it become easier to adopt the necessary lifestyle changes, but you'll get better at effectively budgeting your finances. You'll start seeing saving opportunities everywhere. Where others see a spending spree, you'll see a chance to build a stronger safety net or a means to secure your next savings objective.

The Big Budgeting Wrap-Up

There is never a bad time to begin budgeting and putting money away for your future. But knowing how to create a budget plan is important. Without this knowledge, it is difficult to accurately understand how you spend your money and identify potential saving opportunities.

On the other hand, when you do have this information, you can begin formulating actionable strategies to cut spending and put more into your savings each month. So, start today by looking at your spending and creating your plan for a secure financial future. Happy budgeting!