With the average life span in the U.S. now at 78.9 years, and with many more Americans living to and surpassing the age of 100, budgeting in preparation for retirement and during retirement is crucial to making your savings last to carry you through.

Without a budget, even some of the savviest individuals live with ongoing financial struggles. When finances are tight, creating and using a budget is vital to both preventing financial difficulties and attaining financial security. It can make the difference in being able to save for vacations, a home, or retirement.

Budgeting consists of determining your income and expenses, making necessary adjustments to your cost of living, and following your budget religiously.

The first step in creating a budget is to determine your monthly income and expenses. One of the biggest problems in budgeting (aside from failing to follow it) is the failure to include all costs. It’s an easy oversight with expenses you don’t incur on a regular schedule, such as vacations, gifts, auto maintenance, clothing and entertainment. Bills paid quarterly or annually, such as life and homeowners’ insurance or property taxes, are often forgotten as well.

Another error individuals make is the temptation to budget for the best-case scenario with fluctuating bills such as gas and electricity. So be sure to determine the average cost over 12 months, or else budget for the high side.

Finally, small day-to-day expenses are frequently overlooked. Over a month, these add up to a heap of change. This includes eating out, buying a newspaper, pet expenses, or stopping for a soda or coffee. Other overlooked costs include replacing a toaster, repairing the garbage disposal, and the countless other repairs and replacements over a year. Brainstorm and create categories for all these types of expenses to include in your budget.

Now determine your monthly expenditures for bills that fluctuate from month-to-month by adding up the previous year’s bills. Add 5% to account for inflation. Then divide by 12 to get a monthly average.

For categories like gifts or clothing, calculate what you spend in a full year. When totaled up, this is often an eye-opener. Under this category, include outerwear, footwear, underwear and socks, sportswear, summer clothing, work wardrobe and casual wear. Add the total expense for the year. Then divide by 12 for your average monthly spending.

Determining your monthly income is simple if you receive the same amount each month in social security or pension payments. If you still work, just multiply your weekly take-home pay by 4.3 weeks since there are nearly 4 1/2 weeks in a month.

If your income varies because of commissions, overtime, or self-employment, calculate your average weekly pay, then multiply it by 4.3. And then, to determine the difference between your monthly income and expenses, add up each column individually. Then subtract total expenses from total income.

Hopefully, you’re earning more than you’re spending. If so, you can create a savings plan for travel, make additional deposits to your IRA, or increase your emergency savings. If you have a negative difference, you’ll need to cut costs. Place a checkmark next to each item you can’t reduce. This might include mortgage or rent and fixed loan payments.

Next, from the items that don’t have a checkmark, determine which are unnecessary or don’t provide real value to your life, and begin cutting or reducing. Other items you can reduce include dining out, entertainment, vacations and gifts. You might also be able to reduce some of the essential categories, such as clothing, grocery and miscellaneous expenses. First, determine how much you must spend to have your needs met. Then continue cutting and reducing until your budget balances, or preferably, has a positive balance to cover savings, emergencies and miscalculations. Keep in mind when making reductions, you need a realistic, detailed plan you’re able to stick to. You might want to devise a plan to reduce several costs rather than completely eliminate some if it helps reduce your temptation to break the budget. Or vice versa. Just be sure to think it through.

The final step in budgeting is to stick to it. That’s where it’s easy to go astray. To remain within your budget, track unfixed expenses such as vacations, entertainment, clothing, gifts and miscellaneous. Buy a ledger and label a separate page for each category. 

Also, keep in mind, when extra cash is floating around, it’s tempting to assume the money’s available to spend. Remember, your budget is based on averages. This means the extra $100 or $1000 sitting in your bank account must be available to cover another expense down the road, such as property taxes or car repairs.

Attaining and maintaining financial security requires self-discipline to live within your means. By setting up an accurate budget and sticking to it, you’ll not only avoid debt and financial hardship but the stress that so often accompanies it.

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