How to Start and Sustain a Budget That Works
Budgeting Basics: How to Start and Sustain a Budget That Works
For many people, creating a budget can feel stressful and overwhelming. But Art Taggart, a financial coach with the Belmont Housing Financial Education Center, replaces that fear with confidence, teaching people how to gain control of their finances so they can save more.
“To make a financial foothold, you have to start with a budget,” Taggart says. The Belmont Housing Financial Education Center, a partnership between the housing services nonprofit and Northwest Bank, provides free financial coaching, homebuyer support, educational workshops and more to aspiring homebuyers in Western New York.
If you’re working toward a significant financial goal, such as a down payment on a home, beginning with a budget is essential. “It helps you understand where you’re starting from and gives you a realistic picture of what you need to do,” Taggart says.
The good news is that creating a budget doesn’t have to be a complicated process. In fact, Taggart says the simpler, the better. He offers the following tips for creating a budget that illuminates your personal finances – and carves a path toward reaching your savings goals.
- Understand how a budget helps
More than 60% of Americans live paycheck to paycheck, meaning they spend most of what they earn monthly. This is not hard to do, considering we’re seeing record-high inflation and housing costs in many parts of the country. But Taggart says budgeting can help people find more financial wiggle room — highlighting where their money is going and revealing opportunities for savings.
The information gleaned from a budget might also spur you to reconsider factors such as where you live, where you want to buy a home, the vehicle you drive and more. “The budget is a compass,” Taggart says. “It will show you where you are right now and help you figure out how to move forward.”
- Track your expenses
As noted, Taggart believes an easy budget is most effective. He starts all of his clients off with a simple budget sheet, where they can fill in their income and monthly bills. “The majority of people discover that they have a 10% deficit,” Taggert says. “They’re spending 10% more than they earn.” He also gives people a monthly spending log to help them understand their spending in more detail. Using the log, people track all their purchases, the amount and the reason for the purchase.
“If you just use your bank statement, that doesn't truly account for all those little things you're spending daily,” Taggart says. “There’s cash in your pocket to take to the coffee shop or gas station and other spending leaks.” The detailed log helps people see their entire spending picture.
- Determine where you can save
The information provided by the budget sheet and monthly spending log is the key to understanding where to save. Taggart sees common themes among people who track their spending. For instance, they’re often surprised at how much money they spend on restaurants and takeout. The same goes for groceries; he likes people to dig into what they buy and where they shop. “If you’re shopping at high-end grocery store instead of a discounter, that can make a big difference in your grocery bill,” he says. Subscribing to multiple streaming services, such as Netflix and Hulu, can also add up — and provide areas of easy savings.
In addition to looking for small ways to save, Taggart also recommends that people shop around for bigger ticket expenses like car insurance. It may be possible to save a couple of hundred dollars a month via a new rate.
- Give yourself time
Once you’ve created a budget that includes saving a certain amount, your job is to stay the course as much as possible. But setbacks are inevitable and you may have an unexpected medical expense or car repair that requires spending the cash you’ve been setting aside. Or you may lose a job or face an increase in daycare costs. Taggart says that the key is to keep going. “You want to regroup and then move forward in a positive direction,” he says. “Reaching a savings goal takes time. It’s not going to happen overnight.” You will make progress if you can revisit your budget when you face challenges, make changes and adapt.
- Celebrate your wins
“No one is perfect and everyone can make money mistakes,” Taggart says. However, if you want to sustain your budgeting process and hit your savings goals, you have to focus on what’s working and celebrate when you get a win.
For example, Taggart has his clients request their free credit report as part of their initial budgeting process. Your credit report includes your credit score, which impacts the types of loans and interest rates you can access. He then has clients request additional free reports throughout the year. Many see their credit scores improve along the way. “That’s proof that what you’re doing is working,” Taggart says. Other wins to celebrate include finding unexpected ways to save money and hitting a saving milestone en route to your bigger goal.
Budgeting may sound like a chore. But the secret is that it’s one of the most powerful things you can do to change your financial trajectory. As Taggart says, keep it simple and start small — and you’ll put yourself on a path to financial success.
