How To Create An Effective Budget In 4 Simple Steps

Your budget is the most fundamental part of your entire financial life. In fact, nothing else works unless it does. Having a budget is crucial not only in learning how to better manage the money you currently have, but also for creating financial growth and well-being. Unfortunately, budgeting often carries the misconception that it is something you have to be innately good at, or you’re just never going to get it right.

Neither of those are true. Despite the misconception, the truth is that budgeting is actually quite simple once you have the right strategy and it will also eventually become second nature with practice and repetition. This post will focus on the four simple steps in the LTEM™ method that you should follow to create a budget that works.


The LTEM™ Budget:

balanced budget

1. List

A significant part of creating an effective budget is knowing exactly how much you earn, followed by what your hard earned money is spent on and exactly how much of it goes where. Create a list of your weekly, bi-weekly or monthly net income along with your estimated monthly expenditure. You can choose to do this in an excel spreadsheet or just on plain ol’ paper. Whatever you decide, ensure that you use the system that is the least complicated for you so it will be easier to maintain. In order to make your budget effective, you have to make it simple.

In order to make your budget effective, you have to make it simple. Click To Tweet


2. Track

Unless you are actively tracking how much of your money is goes where, you won’t put yourself in the right position to improve your financial wellness. Start consistently tracking your expenditures until you know what the exact dollar amount is that you spend on each line item in your budget. This is pretty simple and shouldn’t take more than 5-10 minutes if you are recording it daily (which is highly recommended).

Actively tracking what and where you are spending on can also help you to easier realize whether or not you are living within or above your means, and if there are areas that you may need to start cutting back in.


3. Evaluate

What is your your budget saying? Is your money going exactly where you want it to go, or is it being directed towards creating everyone else’s wealth but your own? Take time at regular intervals to evaluate your budget and ensure that your income is being properly guided. Money follows the direction it is given and every single dollar you earn is always being told where to go and what to do, whether or not you happen to be the one guiding them.

I recommend that you explore your spending in detail each month and measure those against your major financial goals. Do a further in-depth analysis and course correction at least once at the end of each quarter. Always pay keen attention to where and how your money is being spent.

Every dollar you earn is always told where to go whether or not YOU are the one guiding them. Click To Tweet


4. Modify

If you want different results, you have to start taking a different course of action. When you uncover areas in your budget that need improvement after your evaluations from step 3, you should now be willing to the make the necessary adjustments. Your goal should never be to create or get the perfect budget, but instead, to get your budget as closely aligned with your personal goals as possible. As those change, so will your budget. Modification is an ongoing process and you will realize that as your financial mindset shifts, how you spend your money will shift as well.

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