How to Create a Budget

Easy tips to create or update a budget that you can actually stick to

One in three Americans keeps a detailed budget, according to Gallup. We've found that some people love budgets while others loathe them, and some have them but find it easiest to simply ignore them. The question is: Does one really need a budget, and how detailed does it need to be? The answer is: Yes! But we don't think you should get hung up on how detailed it should be.

Your budget and budget process shouldn't own you. If it does, we'll help you find a better way to approach your finances. There are many valid reasons for having a budget, which we will dive into in a bit, and more importantly, we think there are some great tools out there to help you in the process.

Why a budget?

• So you don't spend more than you make

• To pay off debt in a planned, consistent manner

• To prepare for emergencies and build a cash reserve

• To save for retirement and family needs

• As a tool to discuss general finances, if you share finances with a partner or spouse

Things to consider before beginning your budget

• Commit to having a budget!

• Consider which system will work for you. It may be pen and paper, a spreadsheet, or an app.  Go with what you are comfortable with and stick to it.

• Decide how detailed you need to be. If you know being super detailed is not going to work for you, then abort mission and stick with something less detailed.

• If you have a partner, get their buy-in. For this to work, you'll both need to commit to a budget.  

• Consider how much you should allocate to spending, saving, and debt repayment. An industry rule of thumb is the 50/30/20. That means you're putting 50 percent of your income toward your needs (like your house, car, groceries), 30 percent toward your wants (guitars, fancy clothes, concert tix), and 20 percent toward savings and retirement. If you're like many of us and want to strive for that little extra, swap the 30 and 20. Put 30 percent of your income toward savings and 20 percent toward your wants. You can do it; push yourself.

• Do a little research and plan how much you want to save, and where that "next dollar" should go. Nerd Wallet has a graphic we love on this topic, especially if you have debt.

Your action plan

Determine your method

An App (use ours!?) Pen to paper? Excel? Find it and stick to it, for at least six months. If after six months it isn't working, try something new.

Find your level of detail

Be realistic. If you like detail and the thought of typing in each expense into an Excel spreadsheet sounds fun, then have at it! If it sounds miserable, consider something more high-level. Aggregating your accounts on a platform like our app lets you scroll through your expenses as often as you like. That way, you can simply take note of each expense. This option may be sufficient for tracking your spending.

Digital tool? Pick the platform

Our app does a lot of the heavy lifting for you, like importing real-time transactions and current income in addition to simple rules of thumb. It'll only take you about 15 minutes to connect your accounts and get started.

Be Inclusive

If you are calculating your budget manually, include the following:

• Income from all sources

  Include not only a steady income but also any other income you expect periodically. Think about any real estate you own, rental income, frequent gifts, holidays and vacations, birthdays and weddings, etc.

  
  

• Expenses

  We recommend using the past 12 months to see what you typically spend. When looking at periods less than that, spending can be inconsistent.  Include everything. We all fall victim to "that was an atypical expenditure" to make ourselves think we spend less than we do. There are always atypical expenditures.

Don't forget to follow up

Review your actuals

At the end of each month, compare your expenses and income. If your expenses exceed your income, it is time to make changes to your budget.

Make goals

After you have established your budget, it's time to step back and consider your financial goals. Do you need to save more, or plan better, think about your complete financial goals, like spending down debt, saving for retirement, and kids' college plans?

Look for improvements

It can be tougher to adjust your income, but you can certainly make changes to your expenses.

Monitor your growth

The final step is to monitor your financial progress to check whether you are making the right efforts. 

And, of course, keep up with your To Do List available in our app to stay on track with your plan!