How to Build a Realistic Budget That Works for You

Living paycheck to paycheck is a reality for many people. When every dollar counts, creating and sticking to a budget becomes crucial. However, budgeting can feel overwhelming, especially when your income fluctuates or unexpected expenses pop up. 

Here’s how you can create a realistic budget for your financial situation.

Understand Your Income

When you are a salaried employee, you know how much money you will earn each month. But, if you are an hourly worker, your income may vary from week to week. 

Hourly workers can start their budgeting process by calculating their average monthly income. To do this:

1. Look at your past three to six months of paychecks
2. Add up the total amount earned
3. Divide by the number of months to get your average

Be conservative in your estimate, and consider using months when you earned less as the baseline for your budget. It’s better to underestimate and have extra cash at the end of the month than to come up short because you overestimated.

Track Your Expenses

Before you can budget, you need to know where your money is going. For at least one month, track all your expenses, including

• Bills (mortgage or rent, utilities, phone, etc.)
• Groceries
• Transportation costs (gas, bus fare, etc.)
• Personal care items
• Entertainment
• Debt payments
• Anything else

You can track expenses using a budgeting app, notebook, or spreadsheet. The important thing is to be honest and thorough.

If you have a Payactiv account and use the Payactiv Visa^® Card* for purchases, you can automatically track your expenses by category in the Payactiv app¹.

Categorize Your Spending

Once you have one month’s worth of expenses, group them into the following categories:

• Needs: Rent, utilities, groceries, transportation to work, etc.
• Wants: Cable TV, dining out, new clothes, etc.
• Debt: Credit card payments, car payments, and other debts
• Savings: Funds added to your savings account, emergency fund, or investments

This will help you see where you might be overspending and where you can cut back.

Create Your Budget

Now, it’s time to create your actual budget. Here’s a simple method you can use:

1. Start with your average monthly income.
2. Create categories for your “needs” expenses and subtract those from your income.
3. Create categories for debt repayment and savings (even if it’s just $20), and subtract that from your total in the last step.
4. What’s left can be divided among your “wants.”

Remember, your budget should be realistic. If you’re used to eating out twice a week, don’t suddenly budget for zero restaurant meals. Small, gradual changes are more likely to stick. 

You can review and update your budget monthly to ensure it aligns with your finances. Think of it as a spending plan.

Deal with Variable Expenses

Some expenses, like utilities, can vary from month to month. Look at your past bills to find the highest amount you’ve paid, and budget for that to ensure you don’t come up short.

If you spend less, great! That’s extra money you can put towards savings or paying off your debt.

Build an Emergency Fund

When you’re living paycheck to paycheck, an unexpected expense can derail your entire budget. That’s why having an emergency fund is crucial. 

Most financial experts suggest having at least three months of expenses in a savings account if you have a steady income. However, saving at least six months of expenses is ideal if your income is variable.

These may seem like big goals, but starting small is okay. Even $5 or $10 a week adds up over time.

If your direct deposit goes to your Payactiv account, you can automatically put a portion of your paychecks into a set-aside account called goal based saving.²

Cut Costs

When your expenses exceed your income, you must find ways to cut costs. There are many ways to do this, including:

• Cooking at home more often instead of going to restaurants or ordering delivery
• Using public transportation or carpooling
• Canceling subscriptions you don’t use much
• Looking for free entertainment options in your community
• Buying generic brands at the grocery store
• Clipping coupons and looking for sales

Remember, small savings add up. Saving $5 here and $10 there can make a big difference over time.

Increase Your Income

Sometimes, cutting expenses isn’t enough. If possible, look for ways to increase your income. You can try:

• Asking for more hours at work
• Looking for a second part-time job
• Selling items you no longer need
• Taking on a side hustle like pet-sitting or lawn care in your free time

Even a slight increase in income can provide some much-needed breathing room in your budget.

Stay Motivated

Sticking to a budget can be challenging, especially when money is tight. Here are some tips to stay motivated:

• Understand your why: You likely aren’t budgeting because you thought it would be fun. If you start getting off track, remind yourself why you started your budget.
• Visualize your goals: If you’re saving for something specific, keep a picture of it where you’ll see it often.
• Celebrate small wins: Did you stay under budget in a category? Treat yourself (within reason, of course).
• Find a budget buddy: Sharing your journey with someone can make it easier since they can help hold you accountable.

If your motivation falters and you slip up, don’t be too hard on yourself. Instead, find what motivates you and get back on track quickly.

Final Word

With the right attitude and focus on your finances, you can create a realistic budget for your unique needs. This can lead to less stress about money and a better financial outlook.

¹Standard data rates from your wireless service provider may apply.

²Goal-based saving is a set-aside account, and you will not receive interest or other earnings on the funds within the goal-based account.

*The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll free at 1-877-747-5862, 24 hours a day, 7 days a week.

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