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Creating and living on a strict budget has been one of the most freeing things I’ve done in my life. I know that sounds a little counterintuitive – tracking every penny and limiting expenditures may seem like cruel and unusual punishment to many of you. But being able to accurately plan ahead financially has allowed me to confidently book fun vacations, create a timeline for paying off debt, and make a few little splurges here and there without the guilt or concern of whether or not I can really afford it. It has also allowed my husband and I to be more generous with our money, which is a win for everyone!

It’s impossible to set realistic financial goals without a realistic grasp of how much money is going in and out of your bank account. It’s amazing how much of an impact awareness can have – you might be very surprised to see how the numbers add up once you start keeping track. And whether or not “financial goals” is something that’s a part of your everyday vocabulary, we all have them – even if your “financial goals” are simply making ends meet. The surprising thing is that creating a budget may lead you to realize that you have more potential to create legitimate financial goals than you think.

There are several options for how to create, manage, and maintain a monthly budget. A monthly timeline is the most natural, as many payments and bills are charged monthly, but I do recommend updating your budget much more often. Frequent interaction with your budget will keep it on your mind and take out the guesswork of where you’re at.

I use an extensive Excel spreadsheet budget that has been developed and perfected over several years. If you’re a little obsessive-compulsive like me, that may be a good fit for you, too. If you are not quite as spreadsheet savvy or prefer a little more mobility, there are some great online resources like Mint.com or EveryDollar.com (I have just recently started taking EveryDollar for a spin and am pleased with it so far). And there is always the classic pen-and-paper option. Find whatever method works best for you, but keep these key factors in mind:

  1. Track every penny

    I can see some of you cringing already. Every penny? Every single one? Yes! When that Starbuck’s barista asks if you want a receipt for your $2 coffee, you better say yes! When you lose a $5 bet over a football game to your best pal, you better budget that bad boy. If you are throwing money around without knowing where it’s going, you will never have control over your finances. You may be very surprised to see where your money is going when you start keeping track. And you might feel very convicted to reign in your spending when you see how out-of-control it really is.

  2. Set limits and stick to them

    A budget is obviously much more than a method of tracking your spending. It is meant to limit and control your spending, too. You’re cringing again, I know. But don’t think of a budget as a limitation. Think of it as a guide to free up your potential! Sure, you can stop at your favorite hipster café every day on the way to work, or you can go out to the bar every Friday night and order three drinks, or you can order take-out several times a week instead of cooking at home. But even by just reducing, not totally eliminating, those habits, you can start saving hundreds of dollars per month. That adds up quickly!

  3. Use your budget to plan for the future

    We used our budget to plan for when and how we’d pay off our student debt and our vehicles. We are now completely debt-free, and we’ve gone on three fabulous vacations in the past year. Could we have done any of that without a budget? Not a chance. We knew that paying off our debt was realistic because we know exactly how much money is coming in and going out each month. And we knew that we could afford a week on the beach in Punta Cana because we know how much money we can put in our travel fund each month. If our budget made it clear that we couldn’t afford those things, it would be better to know that and not put ourselves in an unfortunate financial situation by spending beyond our means.

  4. Build in a buffer for life’s little surprises

    The biggest mistake I have made in my budgeting journey is not planning for the unplanned. Sometimes, your car breaks down, or you have to go to the emergency room, or your phone gets stolen. Life loves throwing unexpected curve balls at the least convenient time. When we were a month away from reaching our goal of paying off our student loans, we decided to throw our small “car fund” savings towards our debt to cross the finish line. The next week, our vehicle died in the middle of the road with no hope of repair, and we had to take out a car loan to replace it. True story. Having an emergency fund is an important and necessary factor in reaching financial freedom.

  5. Budget for “fun money”

    Having some planned freedom in your budget should alleviate some of your restriction anxiety and prevent from you from totally derailing out of frustration. We all need some wiggle room to spend a little cash on whatever we want. We set a certain amount in the budget each month for “fun money” that you track like anything else but can be used for anything. Or if you really want to get crazy, you could take out a $50 bill, for example, in cash at the beginning of the month to spend on whatever you want and simply budget that $50 as one expense called “fun money.” Another thing that my husband and I have done is find a source of extra money (donating plasma, a regular baby-sitting or dog-sitting gig, etc.) that bypasses the budget altogether and can be used for whatever we want.

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