How to Create a Budget You Can Live With

Clueless on managing your money? Do you wonder where your money goes each month? You’re not alone!

One recent study asked 1,000 Americans over the age of 30 about finances and less than half could explain what a 401(k) is or had working knowledge of interest, bankruptcy and how inflation works. More than half of those in the study, 55 percent, said that they felt lost when it comes to creating a long-term and stable financial plan. Only 30 percent said they had made a proper financial plan with their income using a budget. Merely 13 percent had a five-year plan for their finances.

So it’s no wonder that many Americans are pessimistic when it comes to projecting their finances. More than a quarter of those polled said they don’t see themselves as a homeowner, a third couldn’t see themselves living without debt and more than a third said they don’t see a stable retirement in their future.

Less than half of those polled by U.S. Bank, 41 percent, said they use a budget planner, which actually is an increase from a 2013 study that showed only 1 in 3 households used monthly budgets. So most people are paying bills, spending money without any kind of budget or plan. Does that sound like you?

Budgeting tools easy to find

Luckily for us, there are easier ways to track our spending than in the old days, with online banking, budgeting tools, expense trackers and budgeting tips. It’s important to have a budget, which can lead you out of debt and into a system where you are saving money for the future. It’s especially important if you’re new to living in an apartment home or just starting out in your career, but even if you’re well on your way through life, creating and sticking to a budget is a smart move.

Who hasn’t had one of those months when everything seems to go wrong and you’re wondering whether you can make it to the next paycheck? Forget about ramen! Sticking to a budget can give you peace of mind knowing everything’s covered and there’s still money left over.

Some people swear by the 50-20-30 rule when creating a budget in which 50 percent of income goes toward living expenses and essentials (rent, utilities, groceries, transportation, etc.), 20 percent to financial goals (savings, investments, debt payments) and 30 percent for flexible spending (movies, travel, etc.)

Budgeting gives you freedom

As the well-regarded financial expert Dave Ramsey says, with a solid budget in place, you are in control of your own money. A budget doesn’t limit your freedom, he says, it gives you freedom and is really all about being intentional with where your money goes.

Ramsey says there are about 10 categories for budgeting: housing (25-35 percent); food (10-15 percent); transportation (10-15 percent); insurance (10-25 percent); utilities (5-10 percent); health (5-10 percent); recreational (5-10 percent); personal (10-15 percent); giving (10-15 percent); and saving (10-15 percent).

Ramsey’s tips for creating a monthly budget that works includes writing down your total income (take-home pay, after taxes) for a month, listing all of your expenses, subtracting your expenses from income to equal zero (zero-based budget) and tracking your expenses. It’s not rocket science, but even if you flub your first few budgets, you’ll get used to it eventually and won’t have to spend a lot of time figuring it out.

Make it a team effort

If you are married or if you have roommates in your apartment home, you should all be on the same page — and budget. Sometimes, you’ll have months when there are extra expenses or income, whether it’s paying for school supplies or figuring what to do with that Christmas bonus. Adjust your budget as needed. Create a savings account to stash those happy additional paychecks.

Paying off debt is important, but take care of the necessities — food, your apartment rent, utilities, basic clothing and transportation — and don’t forget about setting aside funds for giving and savings. When you account for every penny you have, it’s possible.

One thing that creating a budget can do is show you how much more you’re spending on something that should go toward something else and make your life easier all around. You can organize the regular expenses, such as payments for your student loan, grocery shopping and utilities.

Governments have “rainy day funds” in which they set aside surplus funds to be used for emergencies. You can, too! That way, the next time your car breaks down, you’ll have the money ready to cover the costs.

Some people find the envelope system works for them and keeps spending in check. In this method, money from the bank is withdrawn at the beginning of the month and put into specific envelopes for different uses. For instance, if your budget calls for spending $500 on groceries, you withdraw $500, put it into an envelope marked “Groceries.” When the money runs out, that’s it. If you’ve got money left over, you can put it into your savings.

As we said earlier, there are many helpful sites online to help you budget. There are downloadable spreadsheets, worksheets, apps and personal finance tools.

Consider professional help

If creating a budget sounds too complicated, consider hiring someone to help you. According to a study by the National Financial Educators Council, money mistakes cost Americans an average of $1,230 over one year. According to the Transamerica Center for Retirement Studies, 4 in 10 people said they guessed at what amount they needed to save for retirement. Yet a poll by CNBC and Acorns says 75 percent of Americans manage their own finances, with only 17 percent relying on a financial advisor.

If you choose to hire a financial planner here are some tips: make sure the financial advisor is a certified financial planner (CFP), which means they’re licensed, regulated and have taken mandatory classes on financial planning; avoid financial planners who earn money on commission as they might have a stake in steering your into a certain director; and read the planner’s code of ethics, making sure it includes the word “fiduciary” and other wording that ensures they’re looking after your best interest. Ask friends and relatives for recommendations and look to established organizations such as Garrett Planning Network, the National Association of Personal Financial Advisors and Accredited Financial Counselor.