Money Basics Series: Budgeting

budgeting financial planning Mar 13, 2024
financial planning, budgeting

Budgeting is one of the most-discussed financial planning topics out there. It’s with good reason because having a plan for your money is one of the most important things you can do to take control of your finances. Most people don’t have or follow a strict budget which can get them into trouble, i.e overspending, not saving enough, and racking up debt.

I am not a fan of the “you must count or track every penny” school of thought. Although if you do more power to you! What I recommend is following a simple formula of Income-Savings= Expenses. This does double-duty of a comprehensive strategy for your money and liberating you from spreadsheets. I’ve found that it is one of the most efficient and effective methods of controlling your money.

The basic steps are:

  1. Identify your income sources. Closely examine what’s coming in from your various sources(paychecks, rental income, alimony, etc.). Check your paystubs or bank statements for this.

  2. Set goals. Choose/identify a few goals or major planned expenditures, then back into a monthly amount you need to allocate to each in order to achieve them in your desired time frame. This should include any savings goals, large purchases or debt payoff amounts in advance of the predetermined payoff schedule.

    For example, I want to go on vacation in 2 years. It should cost $3,000, therefore I need to save $125/month between now and then in order to make it happen. Do this for every goal and add up the total.

  3. Calculate your expenses. This should include everything else you spend monthly such as rent, transportation costs, groceries, minimum debt payment amounts, etc. The goal is to get this total within what’s leftover. It can be helpful to review a few months of bank or credit card statements to know what you actually spend v. what you think you spend.

    If you find this list adds up to more than what you have leftover, then look at ways you can cut back or revisit the goals and adjust the timeline. Maybe you take that vacation I outlined above in 3 years instead of 2, lowering your monthly savings amount to $83.

    If you find that the list adds up to less than you have leftover, see if there’s another goal you can save towards or try to achieve one of the others quicker.

  4. Live your life! I think the mental space occupied by financial stress is one of the biggest drains for many Americans. This system allows you to know that you have prioritized your financial wellbeing AND frees you to spend more time living your life and less at a spreadsheet.

As you gain more practice in this, you can spend some more time on it and make this more detailed. However, this is an easy, simple way to gain more control over your money and achieve your goals.

Below are some additional resources if you want to learn more. Feel free to drop me a line if you want to discuss it further!

What does it mean to Pay Yourself First ? can help you track spending automatically.

YNAB is a good tool for those of you who like a very detailed budget.


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