How to create a custom budget and stick to it

The most universal piece of financial advice is to create a budget, but sticking to it long-term is easier said than done. Budgeting requires significant restraint, discipline, and sacrifice, so maintaining momentum can be difficult.

Historically, periods of high inflation and signal economic uncertainty have dampened consumer spending, but 2024 saw consistent increases in consumer spending.

This affinity for spending may be due to cultural and lifestyle changes impacting consumers’ ability to budget effectively – half of those with social media accounts have made an impulse purchase promoted on the platform. And 68% regretted the purchase later.

Related: How Ordinary Americans Can Better Plan for 401(k), Retirement Income

83% of Americans report overspending, and 84% of those with a monthly budget note that they often go over it. Instead of prioritizing a realistic budget for their income, people become weary of rigid, unattainable goals.

TheStreet sat down with Liz Miller, CFP and founder of Summit Place Financial, to discuss how consumers can budget effectively in a way that fits their income and lifestyle. The firm is headquartered in Summit, NJ

Prioritizing the 50/30/20 rule

Miller begins by shedding light on the most effective budgeting strategy.

“There are some people who like detailed spreadsheets that list what you’re going to spend in the next six months, but most people can’t stick to that,” she said. “The 50/30/20 rule is a great starting point.”

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Tailoring the proportion of your essential budget to your income level and geographic location can be a great way to make your budget more achievable.

“50% of the money you get should go to the essentials,” she continued. “Now, if you live in New York City, it might be a little bit higher because housing costs are so high here.”

“So don’t worry if it goes up a little more than that if you live in a major city, especially when you’re starting out. For the most part, about 50% should be your rent or mortgage and those fixed payments you can’t do anything about.”

A couple is seen reviewing their finances.

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Practical tips for cutting non-essentials

Miller explains that the trick to cutting costs while enjoying life is to compromise your spending based on what’s most important to you.

“30% should be allocated to the things you choose to spend money on,” she explained. “Maybe you need to cut a streaming service or two. You should watch how much you spend on going out with friends. What is that weekly brunch costing you in the long run?”

Related: The average American faces a major retirement 401(k) dilemma.

“You may have to compromise and ask yourself, ‘Do I go out for the weekend or do I buy new clothes?'”

“The remaining 20% ​​should be your monthly savings target,” she notes. “Some of that could go towards paying off debt, but most of it should be funding the first account – an emergency fund. Once you are debt free, the next step in building wealth is to save enough money to cover emergencies or unexpected expenses.”

Once all debt is paid off and an emergency fund is established, budgeting can help consumers prioritize other goals, such as retirement savings, 401(k) contributions, and building an investment portfolio.

Related: Veteran fund manager sees world of pain coming for stocks