How to set a budget and stick to it

A budget is a tool you need to help you stretch your paycheck as far as it'll go.

[Visual of an archery target labeled “Budget,” with three arrows in its bullseye, labeled “Discipline,” “Planning” and “Prioritization”]

And all it takes is just a little bit of discipline, planning, and most importantly, prioritization.

While creating a budget may seem overwhelming at first - the time you spend putting it together, will certainly be worth it

[Visual of a woman cowering from a giant piece of paper labeled “Budget,” and then cheering as the giant paper protects her from an avalanche of bills]

when the process of paying your monthly bills becomes a little less stressful. So, where do you start? Well, setting a goal is always a good place to begin. It gives you something to shoot for. And then, of course, making a plan that's going to set you in motion.

So here's how to do that in six easy steps. Step one: know your income. Seems simple enough, right? But knowing how much you can spend each month starts with knowing how much you take home. That means you can't build your budget based on your salary. It should be based on your net income.

[Visual of two contractors reading a blueprint, with thought bubbles appearing that say “Tax,” “Insurance,” “401k” and “That’s it?”]

So, get out some pay stubs and see what you're clearing after taxes, insurance, 401k contributions, and, other stuff like that.

Step two: determine your basic expenses. Figure out what your fixed expenses are every month. These are the things that don't fluctuate or change dramatically throughout the year, like, rent or mortgage payments, good old car payments, insurance, and student loans.

This is also a good time to make sure you have some kind of safety net to help pay for these expenses in case of an emergency, like, if you need a new water heater or your car needs a new transmission.

Step three: determine expenses that vary each month. These are the things that change, based on usage, like your phone and other utilities, as well as your grocery bill– that could change. You could also add up all those flexible expenses, like clothes, restaurant meals, and entertainment costs. These are the costs that you have control over.

Step four: determine what's really important. When it comes to creating a budget that works, you have to take a really hard look at what you feel is truly necessary. As much as you like to think you can't live without the latest gadget, this type of expense should go into the "like-to-have" category.

So, if you want to find the fluff in your budget, start digging into your variable expenses and rank what's most important to you. Do you really need unlimited texting on your cell phone? If not, get rid of it. Are you watching all the 437 channels of cable? No? Downgrade to basic.

Step five: follow your spending and review monthly. You want to give your budget a fighting chance, right? So keep an eye on your wallet, and especially those credit cards, to make sure you're spending within limits throughout the month. It's easy to forget - right? - and even easier for the small things to start adding up, so keep on it.

Step six: keep track. Find a way that works for you to keep track of your expenses. That can mean the old pen and paper, a spreadsheet, or one of those new fancy, fun budgeting apps. A lot of banks have these as part of their online banking. They are easy to find and use, so be sure to look for them. Then, you just balance your budget. Keep your income information current and track your actual expenses monthly. After a few months, you’ll start to see patterns then you can figure out where you can streamline and make adjustments.

Now, if you don’t want to go it alone, there are some sites all over the Internet to help you analyze what have you coming in and what you're spending.

All in all, making a budget is a process that will take some time and effort, but put these steps into place and what you'll get in return is well worth it. Before long, you can have more money for the things you want, in addition to the things you need.

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