How to Create a Budget, and Stick to It

Making and following a budget that works for your specific goals is easier than you think.

Written by Rafael Bernard / December 10, 2021

Quick Bites

  • Becoming a budget-conscious saver is not as scary as it sounds; it’s not all about cutting out your daily latte.
  • Dividing expenses into wants vs. needs is a highly personalized endeavor. There’s no one right way to view your expenditures.
  • Typically, needs are things like utility bills, your mortgage or rent, and groceries. Wants are discretionary spending items like entertainment or eating out.
  • There are useful tools you can acquire on the way to crafting your budget that can help you meet your goals.

When you hear the word “budget,” you may get the same shiver up your spine as when thinking about a pending dentist appointment. But this doesn’t have to be so. Tackling your spending and saving does not have to be scary.

With our step-by-step budgeting guide, you’ll learn how to set realistic goals, separate out your spending into needs and wants, and choose a budgeting strategy that works for you. You’ll also get tips on how to stay on budget today and in the future. Let’s get started!

Inside this article

  1. Set your goals
  2. Identify your strategy
  3. Wants vs. needs
  4. Track it
  5. Revisit your plan

Step 1: Set your budgeting goals

While budgeting generally involves some form of getting your spending on track, each person’s budgeting goals will look a little different. So take a moment to take stock of where you are and where you’d like to be financially to set yourself up for success.

List Your Goals

It could be very simple, like starting to spend less than you make every month. Or having a clear idea of how much you spend every month, so you can worry less about money.

Size Your Confidence

Once you have written down a few ideas, reflect on how challenging these goals feel to you. How confident are you that you have the ability to reduce your shopping habits or find a side hustle to boost your cash flow?

Next to each goal, rank how confident you are, on a scale of 1 to 10. Don’t worry if it’s not a high number; even if you write down only a 2 or a 3, that’s still great news—it means you have some budgeting knowledge already, which is a good starting point.

Know You Can Do This!

Keep this list of goals and revisit it, updating your confidence level as you learn more about budgeting. It can be a great way to track the progress of your financial know-how. Having a clear picture of what success looks like can help steer you on the right path.

Step 2: Find a strategy

Which budgeting strategy works best for you? Here are three to consider. Once you identify a strategy that aligns with your lifestyle, stick to it for at least a few months to see how it suits you.

  • Zero-based budgeting: The practice of allocating each dollar you make to a specific expense or goal. That way all your income has a specific purpose, reducing uncertainty of where your money should go. Think of it as similar to goals-based investing, where every dollar you save is designated for a specific goal. But in this case, every dollar you earn from work is designated for a specific expense.

  • 50/30/20: Take your income and allocate half of it to needs, 30% to wants, and 20% to goals. Ensure you are saving 20% every month toward your long-term goals like college saving or retirement. And if you are running at a deficit, you may be spending beyond 30% on wants, which should be adjusted. To figure out which expense is a need vs. want, write them all down and reflect on which items are truly necessary to not only survive but thrive (see Step 3 for more on this).

  • Gamify your budget: Turn saving money into a game. See how little you can spend in a week. You may even try competing against a friend. See if you can make any tricks you picked up during the competition—such as making coffee at home—permanent. Every time you increase your quality of life with new expenditures, it’s hard to cut out these new luxuries you’ve become accustomed to enjoying. Turning this exercise into a game can supply motivation to create more savings.

Tip: To help make sure you are saving close to 20% a year, if you have a retirement plan at work, see if you can save a percentage of your salary rather than a dollar amount. That way every time you get a raise, you automatically save more for long-term goals.
What Are Your Money Beliefs?

Often, it’s not just the allure of new toys and clothes that causes us to overspend. Underlying beliefs about money can cause us to spend in not-so-money-savvy ways, according to Brad Klontz, executive director of financial psychology and behavioral finance at Your Mental Wealth Advisors[1].

A very common one is to see money as a form of status. This can cause people to buy fancy cars way beyond what their budget can handle. Others see money as a form of love. They spend money on friends and family, or even on themselves, to display their emotions.

Think about instances when you spent money on luxury items that were not aligned with your values. Ask yourself if there’s a particular product that you overspent on, but later realized it was not worth it. And consider if you made the purchase for the wrong reasons.

Looking forward, commit to weighing your new budgeting goals when tempted by spending ideas motivated by emotions rather than rationality.

Step 3: Define your wants vs. needs

Crafting your budget often involves dividing your expenses into two groups: wants and needs. It seems pretty simple on the surface. Updating your furniture is a want. Paying the phone bill is a need.

Divvying up expenses this way can help reduce your spending, as only wants can be cut. This allows you to focus on the bills that you truly have flexibility with.

The caveat: It’s not always easy to decide what is a want and what is a need. Typically, needs are things like utility bills, your mortgage or rent, and groceries. Wants are discretionary spending items like entertainment or eating out.

Give Me Lattes, or Give Me Death

Everyone defines wants and needs differently. Some people can’t survive a day on this Earth without their morning Frappuccino or annual golf membership. These are things that make life wonderful for them. But for some people, those are clearly discretionary items that can be trimmed.

With this in mind, look over your list of expenses and reflect on which items are truly a need vs. a want. Disregard what others would think of your list. Your financial plan is unique to you, so it should be based on your values, not someone else’s.

Maslow’s Hierarchy

One way to assess your spending plan is to look at Maslow’s Hierarchy of Needs[2]. It was developed by psychologist Abraham Maslow, who theorized that people’s needs can be categorized in a sort of pyramid.

Essentially, at the bottom of the pyramid are things like physiological needs and safety. These are physical things we need to acquire like food and shelter in order to survive. But once those needs are met, what used to be a want now becomes a need. So, once we are safe and can afford basic necessities, we find that socializing and spending more time with family becomes a need.

Therefore, once your income rises, a family vacation that used to be considered a want is now crucial to meeting your needs of love and belonging. It may be helpful to keep Maslow’s pyramid in mind during your wants vs. needs exercise to help you categorize your expenses, based on where you feel you are in the pyramid.

Step 4: Keeping track

How should you keep track of your budget? A good ol’ spreadsheet is just fine, but you can also check out some apps that could make it easier for you to see how you’re doing. Here are a few options.

  • Spreadsheet: Use your own spreadsheet created by hand or on a laptop. Track expenses and income and analyze how the two figures match up. Review your budget once a month and take notes of expenses that surprised you.

    (One note: Having a detailed spreadsheet may open your eyes to expenditures you weren’t very aware of, but it can also give you the illusion of accuracy. When you make a super detailed budget, you might think that you’ve covered everything and that your budget is always going to be precise. But the reality is, in a week or a month, that budget could be outdated because, say, gasoline prices could go way up or you might get a break on your car insurance due to not driving during the pandemic. So no matter how detailed you are, be open to changes.)

  • Back of Napkin Method: If you prefer to keep tracking simple, try working with just three numbers: how much you make, how much you save, and the difference between those numbers. For example, if you make $80,000 a year and save $10,000 a year for retirement, then the difference is how much you spend per year (including taxes). So, your budget is $70,000 a year or, $5,834 per month. If you use this method, however, still try to jot down some important and costly expenses, even if not a comprehensive list. It will help you further along in the budgeting process.

  • One of the most established brands in online budgeting, Mint is a free app that allows you to digitally track your budget, among an ever-growing list of related financial features.

  • YNAB: You Need a Budget is an app that focuses on designating each dollar of income toward a specific goal, just like with zero-based budgeting. There is a monthly fee.

  • Qapital: Using behavioral finance methods, Qapital nudges you to make good decisions while making it fun. For example, every time you spend a little less than usual at the supermarket, Qapital will automatically contribute the difference to a savings account.

Tip: Lots of apps and websites can help with organizing your budget. Before seeking out one of these tools, make sure you have organized all your paperwork, and discussed spending habits with your family. Money can be very taboo, so it can be helpful to set a time to discuss spending with loved ones to make sure you are all on the same page as to where your money is going.

Using a Financial Consultant

If you have a relationship with a financial consultant, they may provide advice on your spending plan. But many also have advanced planning software that includes budgeting features. When engaging with a financial consultant, ask if they provide access for their clients to programs like Emoney, which can track your budget and incorporate it into a comprehensive financial plan.

Tip: If your spending is causing you to rack up debt, simply making more money or spending less is not always feasible. Our ability to work is finite and our needs can’t always be reduced. Consider seeking out a credit counselor to help create a plan to tackle your debt. The Consumer Financial Protection Bureau (CFPB) provides guidance on how to find a counselor to plan to reduce debt and even help with budgeting.[3]

Step 5: Keep revisiting your plan

Once you have gained some confidence, calculated how much you spend and experimented with budgeting strategies, it’s time to figure out how you will stick to your plan. After all, budgeting is something that never goes away. That’s why your plan can benefit from regular checkups and fine-tuning.


When it comes to sticking to a long-term structured plan, it’s so tempting to give up each time you’re not seeing progress. Having something or someone to coach you through those difficult times is crucial.

If you don’t work with a financial consultant, try finding a friend or family member in your network who can coach you through tough times. Budgeting difficulties ebb and flow. So, during tricky times—say, during the Black Friday sales—having someone who cares about you to chat with before adding something to your Amazon cart can be beneficial.

Also, keeping reminders of your goals handy can beat the occasional urge to splurge. If you are having a bad day at work and start stress shopping, having images representing your long-term goals at your desk can provide some help. They will remind you of which expenditures truly align with your goals, like saving up for a down payment, so that your income doesn’t get squandered on instant gratification.

Money Dates

If you have a partner, try setting up weekly money dates. These are opportunities to have a glass of wine, put on some music and review your family’s financial situation. Talking about your budget can help you keep each other accountable when you or your significant other is struggling with expenses. And it helps make sure you both are on the same page financially.

An added benefit of having money dates is that it can reduce arguments between couples. In TD Ameritrade’s recent Love and Money survey, couples who discussed money more often were found to have fewer arguments.[4] Those who discussed money at least once a week argued the least. So, enjoy some guilt-free Pinot and chocolate while bolstering your family’s financial wellness.

Expect the Unexpected

Lastly, to help stay on course with your budget, plan for the unexpected. The only certainty is that life will throw you the occasional unexpected car repair bill or job layoff. By purchasing adequate levels of insurance and building a sufficient emergency fund, you should be capable of weathering the occasional financial storm.

Article Sources
  1. “Your Money Script.” Your Mental Wealth Advisors.
  2. “A Guide to the 5 Levels of Maslow’s Hierarchy of Needs.” MasterClass.
  3. “What Is Credit Counseling?” Consumer Financial Protection Bureau.
  4. “The ‘Secret’ to a Happy Relationship? Don’t Keep Financial Secrets!” TD Stories.

About the Author

Photo of Rafael Bernard

Rafael Bernard

Rafael Bernard, MSFP, CFP®, is a CERTIFIED FINANCIAL PLANNER™ practitioner and personal finance editor at Decisionary Media who specializes in financial therapy, which combines traditional financial planning with a therapeutic approach.

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