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  • Writer's pictureThe Garabedian Group, Inc.

How to Create a Financially Balanced Budget You Can Live By

Not having positive money management habits can severely impact your current finances and future well-being. Creating and sticking to good habits can help you feel more in control and give you confidence about your finances.

A budget increases your awareness of all of your projected income and expenses, making it less likely that you’ll find yourself constantly running short on funds. Here are some ways to make your budgeting process more practical and realistic.

Your Mantra to Building a Better Budget

To build the most accurate and forward-thinking budget, you need actionable information to guide your path. That means figuring out your after-tax income to know how much money you take home.

If you get a regular paycheck from your employer, for example, sit down and consider your taxes and automatic deductions for things like health and life insurance and your 401(k). Do this for every household member and add all those totals together. Then you can better understand the total amount of money you can budget.

Then, heighten your awareness of your monthly expenses. For the best results, don’t consider your spending habits this early in the process. Instead, list everything you and your loved ones spend money on to maintain your accustomed lifestyle.

List absolutely everything! This includes the essentials like utilities and streaming service subscriptions, the money you spend eating out in a month, and more. Don’t hold anything back ‒ it won’t benefit you to pretend like you don’t spend $50 a month on coffee runs if you know that you do. If you need to, go through your credit card statements. Various smartphone apps are available to help you get a granular look at your expenses moving forward.

The Beautiful Discipline of the 50/30/20 Budgeting Plan

Once you’ve got that bottom-line dollar value, the next step involves choosing a budgeting plan that you can stick by. Generally speaking, the 50/30/20 plan is popular because of its effectiveness and simplicity.

As the name suggests, this plan says you should spend about 50 percent of your after-tax income on necessities like food, utilities, rent or mortgage payments, and other critical financial obligations. You can spend money on things you want but don’t need (like that night out on the town or that fancy new 4K TV), but it shouldn’t total more than 30 percent of your after-tax earnings. Then, the remaining 20 percent gets funneled directly into your savings account (or is used toward debt repayment).

You may have to adjust these totals slightly depending on your household's debt. Not all debt is bad, but too much debt can be crippling. Increase the money you’re using to pay down debt in the short term to help create a steadier foundation from which to build for the long term.

Make Flexible Considerations

Returning to your expenses, now that you know what you’re spending money on every month, look for opportunities that proactively cut back where possible. Do you pay $15 monthly for a Netflix account you don’t use? It’s better to cancel that and pocket the $15 NOW before it becomes a requirement.

Finally, and perhaps most importantly, don’t be afraid to enlist a professional’s help if you’re unsure what to do. Diving into your finances can always be stressful from a certain perspective, and with the looming threat of a recession on the horizon, that will only get even worse. Rather than trying to do everything yourself and making mistakes in the process, consider enlisting the help of a professional to fill in some of the gaps in your knowledge.

Financial professionals have seen it all ‒ they’ve worked with every type of situation ‒ both good and bad and can bring an invaluable wealth of experience to the conversation. With patience, flexibility, balance, and discipline, you’ll have a budget you can live by.

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