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How To Budget & Stick to It

In just about all aspects, life is unpredictable. Events pop up that you weren’t expecting or necessarily planning for properly. This is especially true on the financial front, where most people struggle — this is why it is essential that you learn how to budget money

You may be thinking that it is impossible to get a hold of your current financial situation. With taking extra time, some discipline, self accountability and support from your family, you can begin to lay out your individual financial goals — and actually stick to them. 

7 Key Points of a Budget

To get started, you need to gather and organize some basic information. Whether you decide to use an app based budget tracker, excel, or a proprietary budgeting system, you will need to have these 7 elements to get started. 

1. Know Your Monthly Income

If you intend to make a solid plan going forward, it is crucial to understand what your monthly income is. This may include just your regular job alone, any side gigs, or any other possible revenue streams you may have. No matter what sources of income you have, it is important to identify and document them so you know exactly what you have to work with going forward.  

2. Determine Your Fixed Expenses

A fixed expense is any cost that you must account for each month. Some expenses may be more vital to pay for each month, depending on your financial and personal situation. Examples include your mortgage, car payment, student loans, cell phone bills, utilities, daycare, amongst others. 

You may have other fixed expenses such as various streaming services, gym memberships, cleaning services, etc. These may be recurring expenses, but may not be considered as important of an expense. It is an important distinction to make, you should write all of your fixed expenses down and classify them as most important to you and your family.   

3. Identify Your Casual Spending

Some expenses occur frequently, but not on a regular set schedule. It is important to note where you are spending the most in order to identify opportunities for potential savings. Some examples of casual spending expenses may include, but are not limited to the following:

  • Entertainment (movies, bars, concerts, etc.)
  • Going out to eat
  • Travel
  • Gifts 
  • Shopping 

4. Where Can You Save? 

We all know that some expenses have opportunities to be reduced, while others may be a set cost without potential for reduction. For example, your fixed expenses such as mortgage, student loans, utilities, etc. may be much harder to create a plan to minimize. It is recommended to focus on expenses that have less resistance to change when getting started. Some questions you should ask yourself are:

  • Do you really need all of those streaming services, or can I get rid of some/all?
  • Could I shop around for a cheaper cell phone/plan?
  • Do I really need this gym membership, or could I try to exercise at home?
  • Can I reduce my casual spending on food, shopping, etc. (within reason)?

5. How Can You Spend With Control? 

There are so many ways you can save money. Once you identify the areas of potential savings, it just takes a certain level of discipline to actually accomplish them. We’ve all heard “stop buying to go coffee”, or “do you really need that — insert item — from Amazon?” (from someone who lives with you and notices boxes every day hand delivered to your doorstep…). These do need to stop entirely, you just need to be smart and selective about which ones you feel like splurging on.

For example, if you compare your income and expenses and find yourself with $400 that is not a fixed expense — you can spend that money however you want! But, there is a catch. If you have $400 for a month, that equates to roughly $100 per week. So, you will be able to buy all the latte’s you want in theory (until you reach that weekly limit), you just need to sacrifice your shopping habits for that particular week. 

Let’s roll through a quick real life scenario:

  • Week 1: You feel like getting coffee every morning at $5 each (hypothetically). That would eat into $35 of that $100 after 7 days of coffee, leaving you with $65. If you decide to go out to eat on a Wednesday with the family using that $65, guess what? You are out of your weekly casual spending money until the following week. 
  • Week 2: You realize this week that a birthday party is coming up and you want to spend $75 on your nephews 5th birthday party present. You can still get your latte’s, but you may have to skip 2 mornings since you only have $25 remaining from your casual spending money this week. 
  • Week 3: You think ahead for your next casual purchase you would like to make. It costs, let’s say $150. This week you would have $50 to spend how you see fit. That means this week you can either buy all your morning latte’s for $35, or go out to eat for $50, or some sort of in-between. Regardless of your choice, something must be sacrificed to meet that $150 goal for the following week.
  • Week 4: From the prior week, you have a $50 surplus. You can now afford your big purchase from this week’s $100 plus the leftover $50 from week 3. Sometimes you have to compromise for a period of time if you are looking ahead at a larger goal.

It is important to stick with your family budget so that you can get the things you want without going into debt. If you are smart about purchases, you can get what you would like still, it just may come at the expense of other things you would also like. It is good to prioritize what your goals are during each week or pay period and focus on those accordingly.   

6. Invest in Yourself

This is the most important step in any budgeting plan, after obviously identifying your income vs. expenses. It cannot be stressed enough how critical it is to pay yourself first, then you can allow yourself to spend freely on other casual expenses with whatever income is left over. You literally cannot afford to not invest in yourself.

After you pay your fixed expenses that are critical to day to day living, you need to put money away for retirement. Whether this is through employer 401K, a traditional or Roth IRA, or other investment accounts, this should be priority number 1. 

7. Put the Plan Into Action

Once you have identified your income and expenses, and have classified them by importance — you can now see your opportunities for saving. You need to make sure that your family is on board with this direction, whatever that may be. Daily, Weekly or Monthly check ins should be performed to ensure you are still on track as well. 

Determining What Budgeting System is Right for You

Once you think you have a plan in place, it may be beneficial to use a budgeting system of some kind. There are many routes you can take and many different methods. Some of the most used methods are the following: 

Excel Sheet Budget

Who’s it for? People who enjoy a custom hands on approach

There are templates online you can use to get you started on how to create a budget. If you prefer to try to understand the process better, you can try creating one yourself. Either via template or creating one yourself, the excel method provides more flexibility to tailor it to your needs. 

Budgeting Apps

Who’s it for? People who want “on the go” financial tracking

Budgeting apps can help you save and budget your money automatically — right from your phone. They can capture your spending habits and categorize them for you and track every dollar you spend. There are also other benefits that each individual app can offer. Some of the most popular apps that people use are:

  • Mint
  • Monefy
  • Personal Capital 
  • Everydollar
  • Goodbudget
  • YNAB 

Financial Leader Approach

Who’s it for? For those who want to learn more about financial sustainability

You may be a huge fan of a podcast or series you can follow along with, this could be a good tool for learning about different methods. However, be mindful of high priced / get rich quick approaches.  

Budgeting Software

Who’s it for? For those who want a non-mobile financial tracking solution

For similar reasons as the budgeting apps, these can help you save and budget your money automatically. You can go online from your computer and login to use the provided tools. Some of the most popular software that people use are:

Financial Planner or Financial Advisor

Who’s it for? For those who require more hands on assistance

A financial advisor may be the best option if you are starting from scratch, or wish to have a detailed budget plan formulated for you.

Final Budgeting Thoughts and Pro Tips

You may think you have a mountain to climb to achieve some semblance of organization in your personal finances. Don’t fret, if you are feeling overwhelmed, or need some perspective just think about or do the following: 

  • No matter your income level, you can benefit from developing and maintaining a budget — get started as soon as possible
  • Stick to a budget that works for you and your family
  • Live within your means — Don’t try to keep up with the Joneses or compare yourself with other people’s spending habits
  • Take a couple minutes each day to check your financial transactions 
  • Set realistic goals, both for the immediate and the long term
  • Save, Save, SAVE where possible