Developing a Budget

Developing a Budget

July 14, 2022

Managing a Budget:  

If you want to control your spending and work to your financial goals, you need  to manage a budget. Below we will give you some recommendations on how to create a budget and how to stay on top of it with reasonable and easy ways to keep you on track. 

Step 1: Gather your Financial Paperwork: 

Begin by gathering your financial paperwork. This should include: 

  • Bank Statements 
  • Investment Accounts
  • Utility Bills
  • W-2 Paystubs
  • Mortgage or Auto Loans
  • Credit Card Bills

Step 2: Calculate your Income: 

Next, we need to calculate your income. An easy way to do this is to do a "Cash Flow" analysis. Cash flow is just a fancy word for determining all the income you generate after taxes. This should include...

  • Earned Income (from your job)
  • Income from Rental Properties
  • Income generated from your investments             

Add these 3 together and you have your income. Feel free to use the link on our website to calculate this.

Step 3: Calculate your Current Expenses:

After we figure out our income, let's calculate our expenses. This should include...(Focus on regular recurring expenses. Do not focus on one off one time expenses)

  • Mortgage/Rent
  • Utilities
  • Food
  • Car Payments
  • Gasoline
  • Property Taxes
  • Travel
  • Student Loans
  • Savings
  • Entertainment
  • Etc. 

Step 4: Create your budget

At this point, you should have a pretty good idea of how you are doing. To create a budget that is easy to understand, we want to segregate income into different buckets by using the 50-20-30. This is not a one size fit all budgeting recommendation. Everyone is in different stages of your life. Retirees who are using their investments for income may not need to worry about the 20% because they are already retired! A 20 year old who just bought their first house might have a larger "needs" percentage than they might in 15 years. The % can be tweaked based on different life styles, but it is a great place to start.  

50: The Needs:

Needs are expenses you can't live without. These should include... 

  • Rent/Mortgage
  • Groceries
  • Utilities
  • Car Payments
  • Cell Phone Bill
  • Etc.

20: Financial Goals: 

This bucket covers two main areas which I generally break down into two different areas.

Retirement Savings (This should be approx. 10% of your earned income). This money should be used to fund your Retirement accounts which may include your 401k, 403b, ROTH IRA, Health Savings Accounts, Etc.).

Longer Term Investments: (The remaining 10%)This area should include longer term savings 5+ years out from an expense. This could include:

  • Saving for a Home Remodel 
  • Paying off Debt 
  • Saving for a Vacation Home
  • Putting money aside for a child's 529 plan. 

30: Everything Else

This is the "fun" bucket. This area is meant for everything else that you enjoy doing that isn't a necessity and isn't for savings. This can include...

  • Streaming (Netflix, HBO, etc)
  • Vacations
  • Going out to Dinner
  • Hobbies
  • Etc. 

Step 5: Monitoring your Expenses

Now that we have developed the budget, we need to setup a system which will continue to monitor our spending. Below are some suggestions as to how you can keep track of your budget. Ultimately, you need to use the system that works BEST for you. 

  • EMONEY advisor (We provide this tool to clients. Please contact me if you want a demo on how to use the budgeting software).
  • Pen and Paper or a Spread sheet (It doesn't get much simpler than this but may require more work as you may need to input your expense manually).
  • MINT (A Budgeting Software provided by Intuit).