Whether you call it a budget or a spending plan, starting and maintaining this habit serves several fundamental financial purposes. It sets boundaries around your spending, calibrates your spending to the income you’re actually bringing in, holds you accountable for how much is spent and how it is spent, and serves as a roadmap to maximizing savings.
Start by establishing a realistic monthly budget. How? Track your spending for a couple of months, revisiting the plan and making revisions as needed. Plan for worst-case expenses - such as setting your utilities budget by the costliest month of the year, be it the heat of summer or the dead of winter - and unanticipated expenses, like car maintenance and repairs.
Establishing a budget that isn’t grounded in reality isn’t useful. Make sure you have at least the total amount of your budgeted monthly expenses directly deposited from your paycheck into your account each month, and direct-deposit any difference into a savings account.