How to create a budget that actually works, in 5 steps by Michael Kane on Jan 4, 2018, 1:25 PM Advertisement
 - The majority of Americans don't keep a budget even though it is important to track income and expenses.
- When budgeting, you don't have to eliminate purchases you want — but recognize they are different from needs.
- A few simple steps and some organizing go along way to having healthy budgeting habits that save you money.
Have you ever taken a look at the year-to-date total on your pay stub and wondered where all the money went? If so, you're not alone. A survey conducted by Gallup showed that two-thirds of Americans do not use a budget. Unfortunately, failing to track our income and expenses in a meaningful way can lead to unhealthy spending habits, reduced savings, and taking on additional debt. All of these can be disastrous for your long-term plans! Creating an effective and sustainable budget is one of the best ways to help you reach your financial goals, so why do so many people fail to do it? Simply put, budgeting is often perceived as a complicated and overwhelming process. Even for those who make the effort, unrealistic goals that are impossible to meet can be discouraging. But it doesn't have to be that way. The following are five easy guidelines that can help you create (and stick to!) a better budget. SEE ALSO: There's a better way to save money now to build wealth in the future DON'T MISS: 11 simple tech travel hacks that will save you time and money on your next trip 1. Differentiate between needs and wants  We have all heard the stories of "found money" by those who started carefully recording their daily expenses. Whether it's the teacher who was spending $25 a week on Starbucks or the young couple who gave up cable and opted for streaming services, a close examination of spending habits can reveal ample opportunities to save. It is important to differentiate between needs and wants in your budget. We know needs include the necessities of life and wants are the "nice-to-haves." The latter can be a rich source of savings once they've been identified and separated from the former. This is not to say that wants have no place in your budget. If your budget doesn't account for those little extras, it might be harder to adhere to it. The teacher can still set aside money for those $5 coffees, but choose to have them two days a week instead of five. It may not seem like much at first, but those savings can be invested over time or used to pay off high-interest debt, building a solid foundation for the future. (For related reading, see: "The Complete Guide to Planning a Yearly Budget: Needs vs. Wants.")
2. Include a miscellaneous category in your budget There is no way to anticipate every expense you will encounter on a monthly or yearly basis. An unexpected car repair or family emergency can wreak havoc on your budget. Including a miscellaneous category can help mitigate the negative impact of these situations and ensure you're prepared for them. It can also help quantify spending that you may not be capturing elsewhere, such as money for gifts or other one-time expenses.
3. Include savings as an expense  "Paying yourself first" is one of the most powerful strategies you can use to secure your financial future. Before paying bills or other expenses, set aside a designated amount you can afford to put in savings every month. You're more likely to reach your savings goals when you treat them as an expense and commit to them as faithfully as any other component of your budget. Setting up direct deposit or automatic transfers directly into savings makes this efficient and easy.
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