Having a budget strategy can help reduce financial stress and help you reach your goals

Inflation is causing financial stress: These 5 strategies can help you build a better budget Learn different budgeting methods to discover what might work for you

Having a budget strategy can help reduce financial stress and help you reach your goals

Inflation is still causing financial stress for most Americans, and surveys show that many people also blame a lack of savings and mounting credit card debt for their anxiety over their finances. 

Earning greater income to cover your spending can relieve some of your worries, but keeping close track of your money can be a simple way to improve your finances. For now, you may need a better budget. 

"Establishing a budget may seem daunting because it can be stressful and may feel restrictive, yet a budget helps you understand where and how you spend your money," said Billy Hensley, president and CEO of the National Endowment for Financial Education. He is also a member of the CNBC Global Financial Wellness Advisory Board.

How to start building a better budget

To get a realistic picture of the money you have coming in and what is going out, begin by tracking your spending over the past three months. 

"The starting point is always to assess your current situation," said certified financial planner Don Edlin, a senior financial coach at Financial Finesse, a financial coaching and education company that works with employees at many Fortune 1000 companies, including Comcast, which owns NBCUniversal, the parent company of CNBC.

"Most of us are overly optimistic about our budget, and we set too aggressive goals," Edlin said. "So, if you haven't taken the time to really benchmark your spending, your budgeting is going to be off. And that's going to create a negative feeling out of the gate, and you're not likely to keep with it going forward."

Review your credit card bills, invoices and other receipts, and take the average of what you've spent over that time to determine the amount you spend on fixed and variable expenses. Use the average of those amounts as a benchmark to understand what you're spending in different categories in your budget — and where you may fall short.

Here are five methods to help you improve your budget: 

1. A spreadsheet, or just pen and paper

Creating a budget can be as simple as finding a free budget spreadsheet online or making a T-chart on paper. Fill in the columns in the spreadsheet or draw a line down the middle of a piece of paper and write all your sources of income on the left side and all your liabilities or mandatory expenses on the right, including rent/mortgage, car payment, credit card bills, and anything else you must pay monthly. 

2. Budgeting apps

There are also plenty of free or fee-based budgeting apps— including Goodbudget, Monarch Money, Simplifi by Quicken and You Need A Budget (YNAB), just to name a few — that link to your banking and credit card accounts. These may automatically track your purchases and payments and categorize spending into different buckets (such as transportation, food, entertainment, etc.) so you know where your money is going.

3. 'Cash stuffing,' aka the envelope method

An "old school" budgeting method is again becoming popular on TikTok. It's called "cash stuffing," and it recommends withdrawing your spending money as cash, and then dividing that into envelopes representing your monthly expenses, such as groceries and gas.

Proponents say doing so helps you to stay within your budget and out of debt. When the cash in one envelope is spent, you're either done spending in that category for that month, or you must borrow from another envelope to compensate. 

Yet stashing cash in envelopes not only forfeits the potential for a 4% to 5% return on money in a high-yield savings account but also leaves you vulnerable to theft. It does not offer the protection of keeping your money in a federally insured bank or credit union. 

4. 50/30/20 rule

Another popular budgeting method is the 50/30/20 rule. In this scenario, you aim to split your after-tax money three ways: 50% for needs, which are essential expenses like food, housing, transportation, and minimum debt repayments; 30% for whatever you want; and 20% for savings, your emergency fund, retirement savings, down payment on a home, debt repayments beyond the minimums. 

Some financial planners saythe 50/30/20 method focuses on what you can do, not what you can't. However, with rising housing and car costs, some people, especially those early in their careers, may need to bump up the needs category to 60% of their income, depending on where they live, and reduce their discretionary spending to 20% — or less if they don't have an emergency fund or want to turbocharge their savings. 

5. Reverse budgeting

Reverse budgeting is another method that puts your savings front and center. Here, you move income to savings first and then spend what is left. The idea is to "pay yourself first" and allocating money to planned savings and spending accounts can help. 

First, save in dedicated accounts for your goals — an emergency fund, retirement, college, or a down payment on a home. High-yield savings accounts are great options for these funds, or you might put the money in an investment account if you have five years or more to reach that goal.

Second, pay for your "needs" — such as rent/mortgage, groceries and student loans — from a checking account. 

Third, direct any leftover money to a high-yield savings or separate checking account and use that money for your "wants," including dinners out, vacations or new clothes.

Avoid common budget-busting mistakes

Housing, transportation and food are Americans' most expensive budget categories, according to the Bureau of Labor Statistics. Together, they accounted for a whopping 63% of average household annual spending in 2022.

"When you're budgeting, if you want the most bang for your buck, focus on these three budget categories. Don't get bogged down in other small budget items that won't have much of an impact overall," said certified financial planner Nick Holeman, director of financial planning at Betterment.

You may also want to try more than one budget method. Don't scold yourself if your first strategy doesn't work. 

"Budgeting is not a one-size-fits-all approach," Hensley said. "Our circumstances also change, and we must respond and react to the variables that affect our well-being."

Therefore, you may need to be flexible to find the right strategy.

Avoid common mistakes, such as not saving for emergencies or irregular expenses, which can bust your budget. 

Holeman recommends building a "sinking fund" for big ticket items.

"A sinking fund helps you plan for large, uneven expenses like new tires, vet visits, or Christmas presents so they don't ruin your budget," he said. "Estimate how much you'll need in total, and set aside a little bit each month. That way you get ahead of the big expense, so it doesn't ruin your budget when you do finally need to swipe that credit card."

Also, be realistic about the categories you prioritize on your list and how much you spend on each. People are often overly optimistic about costs unless they've taken the time to track their expenses and spending from the start. Don't skimp on that step.

Discuss your priorities and goals if you are splitting or combining expenses with a partner or roommate. Regular communication can help keep your budget on track.

Edlin said if you have trouble sticking to your budget, give yourself some grace.

"This isn't an accounting test," he said. "No one's going to grade your budget. It's OK; just do better next month." 

This story originally appeared on: CNBC - Author:Sharon Epperson