Budgeting Basics

When you hear the word “budget”, what do you think? Let me take a few guesses. Could it be blah, boring, not interested? If any of these come to mind, you’re not alone. In fact, according to a Gallup poll only about 1 in 3 Americans actually budget.

Look, I understand why so many people don’t budget — it can be time consuming, tedious, and often even scary to actually sit down and figure out where your money goes. Despite all that, there’s really no better alternative when it comes to managing your money. If you want to get a good grip on your finances, start with a budget. I know it’s not fun or exciting, but it’s doable and will help you achieve your financial goals.

I used to get paid, pay my bills, save a little and spend my money without ever looking at my online banking or statements. In retrospect, that was not the wisest thing to do, but fortunately working in the financial planning space has given me a lot of great insight on how to manage my own money. Once I began paying attention to where my money was going, I was able to create a plan and reach financial milestones that I otherwise wouldn’t have.

Have I convinced you that budgeting isn’t all that bad? Great! Let’s get started.


You can create a budget a few different ways:

  1. You can go the good old fashioned way and write your budget out on a piece of paper. When I first started budgeting, I took this route. It’s a good way to quickly get everything written out and begin working on your spending/savings plan.
  2. You can create a spreadsheet or find spreadsheet templates online by doing a quick Google search that you can download and use.
  3. You can use a web-based personal financial management tool. (I use mint.com now)


Once you decide which route you will take to input the data, the fun can begin!

Step 1: Net income

Begin by identifying your net income every month. Keep in mind, your net income is the money that you take home after: taxes, Social Security, 401(k), health insurance, and any other deductions that may apply to you.

Step 2: Expenses

Tracking your expenses will help you get a clear picture of where your money is going and find areas that you can cut back and save on. It’s important to list all of your expenses. Big or small, tracking every dollar matters so try your best to get it all out. If you use one debit or credit card for all or most of your purchases, I suggest going through your monthly statements and highlighting all of your expenses.

First, identify all of your fixed expenses. Fixed expenses are all those that are the same every month. For example your rent/mortgage, car payment, cell phone bill, insurances, etc. Fixed expenses are harder to cut back on, but still imperative to know and list for the success of your budget. NOTE: although these expenses are harder to cut back on, there is still opportunity here. A great example might be a $40 per month gym membership that you’re not getting much use out of.

Next, find your variable expenses. Variable expenses will change every month — gas, groceries, restaurants, entertainment, self-care, clothing, etc. This where you will find the greatest opportunity to save money. You might be like me and realize that you’re spending a lot of money on buying coffee at Starbucks and find a better alternative that saves you some cash every month.

Don’t forget to save! You will want to track how much money you are (hopefully) saving. Although this money is not being spent, it will still be a dollar amount that you’ll subtract from your net income.

Step 3: Review & Balance

Once you have identified your net income, all of your expenses, and any money going into savings, you can do a little bit of math:

Net Income – Fixed Expenses – Variable Expenses – Savings = Cash Surplus/Shortage

Hopefully the final number is positive, but if it’s negative it just means there is some work to be done. If you end up with a cash shortage, you are spending more money than you are earning. If this is the case, go back to your expenses and look for things you can cut out or reduce.

Maybe you can pack your lunch a few times a week and save on eating out. Or perhaps you don’t watch as much TV as you used to and instead of paying for cable, you can get a Hulu account to get your entertainment fix. Focus on the things you’re not getting a lot of use from or the things you don’t really need.

By cutting out some of these expenses, you can free up some cash to save, invest, pay off debt, or contribute to other financial goals you may have.

Remember that budgeting is an ongoing process. It’s not enough to do it once and not revisit. Things will change and it’s important to stay up-to-date on your budget. Try to review your budget at least once a quarter to see how you’re doing, where your money is going, and how you can save more.

See? I told you it wouldn’t be so bad! Happy budgeting. 😀

Disclosure: Nothing on this post or site should ever be considered to be advice, research, or an invitation to buy or sell any securities.

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