The secret to saving more and spending less every month isn’t a secret at all — it’s a budget.
I’ve developed a 5-step plan to help you create a personal budget and stick to it over the long haul. The CLARK Method and our free budget worksheet will put YOU in control of your money:
“A lot of people look at being told to do a budget as if their life is being restricted. But the whole idea of budgeting is freeing because you’re getting your life under control, creating more choices and reducing anxiety,” money expert Clark Howard says. “Tracking what you’re spending and then seeing where you can make changes in your life is powerful. This is about giving you power back into your life.”
The CLARK Method: 5 Steps to Better Budgeting
Making a monthly budget for the first time may seem overwhelming, but it doesn’t have to be complicated. After the initial setup, it’s really easy and doesn’t take much time.
To help you get started, remember that budgeting is as simple as C-L-A-R-K:
- Calculate your income
- List your expenses
- Analyze your spending and set goals
- Record everything
- Knock out debt and build your savings
Read on to learn about the five steps to a successful budget and download our printable worksheet (PDF file) below to start budgeting the Team Clark way!
1. Calculate Your Income
The first step is to figure out how much money you’re bringing in every month. This includes your take-home pay (your paycheck after taxes, benefits and other deductions) and any other sources of income.
Maintaining a budget can help you make sure that your income exceeds your expenses, including retirement savings.
2. List Your Expenses
Next, write down a list of your expenses. Start by going over last month’s statements and recording your bills by budget category: mortgage/rent, groceries, cell phone bill, etc.
You also want to budget monthly for annual or semi-annual expenses so that you’re not surprised when those bills are due.
For example, if you pay a $600 auto insurance premium every six months, set aside $100 every month and keep it in a savings account until your next payment.
Consider setting up automatic transfers from your checking account to your savings account for these irregular expenses.
3. Analyze Your Spending and Set Goals
Now that you know how much money is coming in and how much money is going out, plan how you’ll spend your dollars! This step is about setting realistic monthly goals for every budget category.
Using our printable worksheet below, set spending limits for your budget categories and highlight areas where you can cut costs.
The worksheet becomes your action plan…
- Plan your spending by setting a dollar amount for each budget category
- Highlight “Needs Help” for categories you want to focus on
- Record your actual spending at the end of the month
- If you’re satisfied with spending in a category, mark it as “Looks Good”
When it comes to your budget, Clark believes that focusing on behavioral changes and not just the numbers can help you stay on track. Here are some of his ideas:
- Invest 10% of every dollar you earn in a retirement fund
- In credit card debt? Freeze your credit cards (literally) and budget with cash
- Focus on meal prep and bring your own lunch to work instead of eating out
“You start where you start and you do building blocks. Don’t overwhelm yourself and look at trying to do everything all at once,” Clark says. “Get your expenses under control, free up some money and then the options start to become more clear about what you do with the money that you’ve managed not to spend.”
4. Record Everything
The only way to hold yourself accountable is to track your spending over time. There are many ways to record your transactions, from a simple Google Sheets spreadsheet to budgeting apps like Mint and YNAB (You Need a Budget).
Review your spending habits at least once a week to look for patterns and make adjustments to your budget as needed.
5. Knock Out Debt and Build Your Savings
Finally, use any leftover money in your budget to reach long-term goals faster. Prioritize things like paying off credit card debt, building an emergency fund and maxing out a Roth IRA.
If you’re still overspending, don’t give up! Use the worksheet to address at least one spending category per month.
“Once you’re living on less than you make, there are no absolutely wrong choices. But there are some that may be better than others. You create the freedom and the choice simply by living on less than you make,” Clark says.