How to Manage a Budget

Wondering how to manage a budget?

Creating a budget is all about collecting real, up-to-date, useful knowledge about your personal finances. And, as we know, knowledge is power. 

Creating and sticking to a budget can help you see incredible benefits regardless of your financial situation. These benefits include:  

• Awareness. Setting up your budget and managing it – at least for a short period – gives you valuable information about where your money is going.  
• Intentionality. This information helps you understand if your real-life spending aligns with your goals. With data before you, you can make informed decisions to tweak your spending habits to better match your values.  
• More spending freedom. When you create a budget, you allocate set resources towards the things you need to spend money on. If an opportunity or need to spend money arises, if it works with your budget, you should feel free to spend as you see fit. This can feel surprisingly freeing, especially if you’ve struggled with spending in the past.  

Having and working within a budget is the foundation you need to make progress towards your financial goals—to put money towards your goals, you need to have an idea of how much you can set aside. 

How to Create a Budget 

Creating a budget can seem overwhelming, but it doesn’t have to be. We’ll walk you through the process in just a few steps.  

Analyze your past income and expenses.  

First, look at your monthly income to remind yourself of the resources you have to allocate. Then, look at your credit card and bank statements for the past three months. Go through each transaction, categorize it, and note how much you spent.  

For now, you can keep the categories relatively general: For example, see if you can determine average monthly spending for food, rent, clothing, utility bills, entertainment, and savings or investments. If you notice a category more specific to you that you consistently put money towards, note that as well.  

Don’t forget non-recurring or ‘unexpected’ expenses, too. Review your statements to find annual costs (e.g., insurance premiums), travel, birthdays, and holiday celebrations. Determine roughly how much you spend for these events and divide that by 12 to turn those into monthly expenses. For example, if you spend $2,400 per year on vacation, you should work to put $200 aside each month to fund that yearly goal.  

Plan for future expenses and savings.  

Now that you have all this information about how you have spent your money, think about how you would like to spend your money in the future.  

Every person’s specific budgetary breakdown will be unique. Yours will reflect your income, circumstances, geographical location, and financial goals. Many financial advisors recommend the 50/30/20 budget model, as one general option. In this model:  

• 50% of your expenses should go to ‘needs’ or paying down debts (housing, groceries, bills);  
• 30% of your expenses should go to ‘wants’; and 
• 20% (or more, if you can make it work!) should go to financial goals like saving or investing.  

The 50/30/20 budgetary model may or may not be possible for you. If you have sizeable debt or live in an area with high rent or mortgages, you may need to shift the ratios slightly towards needs or goals.  

Consider using a budgeting tool.  

If categorizing and calculating manually takes too much time and effort, consider using software to help get the job done.  

Here are a few of our favorites:  

• Start with your existing bank or credit card’s online dashboard. Many of them categorize your expenses for you! Next to your statement, look for a graph or general breakdown. It may not be detailed, but it’s a great place to start.  
• Mint.com offers a popular (and free) online software to help you categorize and track expenses. Connecting your bank and credit card accounts (as long as the site is secure and you’re comfortable with it!) lets you see in real-time if your spending matches your allocated resources. 
• YNAB.com (You Need a Budget) is a paid online tool similar to Mint but allows you a little more control over the process. It also has a few extra features, like loan calculators and the ability to create multiple budgets per account.  
• Finally, you could consider keeping a simple budget spreadsheet on your computer. Many spreadsheet applications (e.g., Excel, Numbers) come with built-in budget templates that allow you to enter your expenses and see sums instantly. 

Evaluate your budget.  

If it fits with your financial goals, consider establishing the first month you’re living with your new budget as strictly observational. If you end up going a little over budget in some areas or not spending as much in others, give yourself some grace, and simply make a note.  

As you near the end of the month, set aside some time for yourself and (if applicable) anyone else living with your budget to look at your statements or check in on your budgeting tools. Ask yourself the following questions:  

• Are there parts of your planned budget that don’t feel particularly realistic? If you find yourself constantly outspending in a specific category, it may be worth considering increasing that category and reducing spending elsewhere, if possible. 
• Are there areas of your spending that don’t align with your values? As you look at the numbers, you may realize that dining out is one of your largest spending categories – but maybe it isn’t something you want to spend money on.  
• Are there areas of your spending that align with your values and possibly deserve more resources? For example, if you enjoy cooking at home, perhaps your grocery budget needs to be higher than you initially thought.  
• Does your current budget allow for progress toward your financial goals? Let’s say you know you should be investing $500/month for a down payment on your dream home. If your budget doesn’t have room for that, you may need to reassess other spending categories to see where you can make reductions.  
• Is there any wiggle room in your budget? It’s guaranteed that you’ll forget to include something in your budget. (And even if you don’t: Life happens. Something’s going to come up.) Does your budget leave any room for the unexpected?  

How to Manage a Budget: Taking the Next Step 

If you’ve completed the above, take a moment to relax and celebrate. Next month, live with the budget again; try to stick to it as much as possible; and check-in with yourself at the end to see how it went.  

Get in touch with a financial advisor if you’re interested in running your budget by a professional. They can review your budget, discuss your plans, and help you find new ways to work toward your financial goals!  

At Commas, we’re always ready to provide accessible, friendly financial advice. Reach out to our team today for more information!  

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at www.commas.devphase.io. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.