Budgeting

Create a budget you can keep


A budget is a written plan that helps you keep track of how much you earn (your income) and how much you spend (your expenses). It's perhaps the single most important tool for understanding how to manage your money, because it clarifies exactly where your money is going.

You can also use your budget to figure out how much you can save and invest. To get started, follow these three essential steps:

Step 1: Plan

Planning a budget involves identifying your income and figuring out spending priorities and trade-offs. Basically, you’re establishing a cash flow plan that lets you know how much you can spend each month—and how much you can save.

First, divide your expenses into two categories.
A simple but effective way to look at your expenses is to divide them into nondiscretionary (your needs) and discretionary (your wants) categories.

  • Nondiscretionary expenses are the "must haves," such as your mortgage or rent, groceries, transportation, insurance premiums and taxes. Be sure to include debt payments such as credit cards and auto loans. You may find it helpful to include your savings and investing goals as line items in your nondiscretionary category (for example, retirement savings, education expenses or medical care costs).
  • Discretionary expenses are the "nice to haves," the extras such as restaurants, entertainment, travel and even clothing.

Don't forget to set aside money for upcoming big-ticket items that come once or twice a year, such as insurance premiums and real estate taxes—they can be easy to forget when creating a monthly budget.

Then list your sources of income.
Where is your money coming from? Your regular wages are most likely your primary source of income. But don’t forget to add in other sources such as bonuses, gifts, income from rental property, interest or investment income, government checks or any other source.

Step 2: Create

Now put some real numbers into your plan. Add up your income, itemize your expenses and do the math.

Coming up short? Prioritize.
This is where you may have to prioritize in order to reach your goals. For instance, can you cut back on entertainment in order to save more? Would it be more economical to take public transportation than pay high gas prices?

Our monthly budget planner can help you more easily calculate your expenses and allocate your income.

It will also help you see more clearly where your money is going and how you may have to modify your spending.

Our Two Cents
Give your savings a boost by including it as a line item in your budget. If you’re carrying a balance on a credit card, add the maximum payment you can afford to your budget as well.
Step 3: Keep track

Keeping your budget up to date and sticking to it are often the hardest parts—but they're also keys to success. So once your budget is complete, monitor it regularly.

Here’s a simple idea: Try carefully tracking your spending for 30 days. Does it match your projections? Do you need to change your daily spending habits to meet your longer-term savings goals?

Budgeting tip


If you're having trouble staying on track, use the spending tracker to record spending every day for a week. It will help you see precisely where your money is going day by day—and give you ideas on where to make changes.

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The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.

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