A budget is a crucial financial tool to use in achieving and maintaining financial stability. It is used to track your spending habits and can help you save for things you need and want without having to suddenly run up your credit card because you ran low on funds. Here are some ways to build a budget and set yourself up for success.

Keep Track of What You Make and Spend

Budgeting doesn’t have to be complicated. You can track your spending on a spreadsheet or use a budgeting app that categorizes spending for you. The point is to know how much you’re spending and avoid unnecessarily adding to your debt load.

When you set up your monthly budget, start with your take-home pay and any other income you have, then subtract your ongoing expenses such as housing, food, utilities, and insurance. After that, deduct other expenses including car registrations, vacations, and property taxes. And, don’t forget the little things – maybe that $9.99 a month streaming service, the $20 birthday gift for your sibling, or the ticket for the concert you’ve been waiting to see. You also should include any financial goals such as setting up an emergency fund or paying off debt.

Be as accurate as possible. Look at your paychecks, savings, checking, credit card, and loan statements and histories to figure out just how much you’re spending, saving, and earning. That way, you can build a workable budget and avoid missing the mark by just guessing at how much your bills are. Trust us, you don’t need the stress that comes with going over budget, nor do you want to have to borrow or charge more to cover expenses.

Don’t Forget to Save a Little – or More

Be sure to work saving into your budget, whether it’s for an unexpected car breakdown, a great vacation, or other upcoming expenses.

One common way to do this is to use the 50/30/20 strategy. Divide your income into three categories: 50% for needs, 30% for wants, and 20% for savings. Needs include your rent or mortgage payment, utilities, groceries, and any other regular monthly bills. Wants could include money you set aside for going out to dinner, trips, or entertainment.

It’s also a good idea to put some of your savings into an emergency fund you can use for life’s unexpected events. It’s a great way to help achieve financial security and be prepared when unanticipated expenses hit, such as car repairs, medical bills, or major home fixes. It also can be used to temporarily cover your bills should you become unemployed or otherwise lose income.

A common rule of thumb is to have an emergency fund that can cover living expenses for three to six months. But you can build that up over time. You can take a smaller, manageable amount from your overall savings budget and set it aside in a separate savings account. Add to it regularly and you’ll achieve that three- to six-month goal faster than you might think!