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The Budgeting Bible

By October 6, 2016No Comments

Create a BudgetBudgeting is the key to controlling your money, and yet, most people don’t do it. Budgeting allows you to manage your finances and set yourself up for a successful financial future. Review the steps and tips in creating a budget and start on the road to success.

How to Create a Budget

Budgeting strategies and techniques vary across the board. For example, a budget for a first-year college student and one for a retiree can be very different. But there are five basic steps in creating a budget. They are all important because they build on one another, helping you organize your finances in a sensible way.

Step 1: Determine Your Financial Goals

There are two types of financial goals: immediate and long range. Immediate goals refer to how you want to use your money today, while long-range goals deal with how you want to spend your money in the future. Both types are important and should be considered carefully. Weigh each goal against the next to determine which one takes precedence.

You need to determine which goals address necessities and which ones cover luxuries. Then, you can prioritize your financial goals accordingly.

Immediate financial goals would include paying your mortgage or rent, car payment, utilities, child care, food, cell phone and household supplies. Secondary goals would address clothing, newspaper or magazine subscriptions, and an evening out with family or friends. Getting out of debt might be another secondary goal. Luxury goals could include a massage, a family vacation or international travel.

Long-range financial goals could also include retirement savings, investments, and charitable donations.

Step 2: Calculate Your Income and Expenses

After you determine your financial goals, you can implement a plan for reaching them. To do this, you need to determine your income and your expenses. Most people budget on a monthly basis because most bills follow a monthly schedule.

Start by making a list of your monthly income sources, including your salary (after taxes), any bonuses you incur on a regular basis, and child support or alimony payments. If you don’t know the exact amount, you can use an estimate. Once you have your numbers, add them up. The total is your monthly income.

The next part of the equation is your expenses, which fall into three categories: fixed committed expenses, variable committed expenses, and discretionary expenses.

  • Fixed committed expenses have a fixed monthly amount, such as your mortgage or rent.
  • Variable committed expenses vary from month-to-month based on need, and would include groceries and gasoline.
  • Discretionary expenses are optional and include recreation and entertainment. A gym membership would also fall into this category unless you have signed a contract — which would put it in the category of fixed expenses.

If you are spending more than ten percent of your monthly income on credit card debt payments, you should consider speaking with a nonprofit credit counselor. Over the telephone or online, a free credit counseling session will walk you through your budget and recommend expenses that can be reduced or eliminated. If you qualify for a debt management program, you may be able to reduce your monthly debt payments as well.

Step 3: Analyze Your Spending and Balance Your Checkbook

The ultimate goal in budgeting is to make sure your expenses do not exceed your monthly income. If this is the case, and more money is going out than coming in, then spending habits need to be examined and modified. It doesn’t necessarily mean you need to start penny-pinching; it just means it is time to revisit the discretionary cost category and see where you are willing and able to cut the fat.

If you make any payments by check, your checkbook register can help you keep track of incoming and outgoing money, and what you spend your money on. Although paying by check is becoming rarer, those who stick to this payment method should keep their checkbooks balanced. Writing checks can help you avoid overdraft fees or bounced checks, and it can shed some light on your spending habits.

Here are the basics:

  • Keep records for all your deposits and purchases. Record each one in your check register, which the bank will provide you.
  • Print out your monthly bank statement if you aren’t already getting one in the mail. If you’re doing everything online, there is software that can make this step — and budgeting — easy.
  • Do your math for deposits and withdrawals to make sure your bank hasn’t missed anything or taken any liberties with your money. Reconcile line by line, making sure your record of checks is the same as the statement.
  • Find the ending number from each monthly statement and work backward, check to see what has cleared, and what has not cleared. Deduct any deposits that haven’t cleared from your balance. If your checks haven’t cleared, they will have to be added back to your balance until they do.
  • Go line-by-line and account for any fees that you have been charged. Seeing them up close may prompt you to call and ask to have some removed, which the banks often will do if you persist. Also, add the pennies of interest you may have received.

Step 4: Revisit Your Original Budget

After you’ve had a chance to monitor your income and expenses for a month or two, you will be more aware of areas that need adjusting. Maybe your initial monthly income estimates were off, or perhaps you didn’t account for expenses like car repairs or veterinarian bills. Now you can make the necessary and informed adjustments to have a budget that is more comprehensive and well-rounded.

Once you work out all the kinks in your budget, you should be able to stick to it for a length of time. However, it’s not meant to be set in stone. You must manage your budget regularly by accounting for changes in your income and spending needs. It’s recommended you do this every three months.

If you get a promotion, for example, you can increase your discretionary spending as well as your savings goals. On the other hand, a layoff or shorter work hours could mean cutting back on spending until you find a way to supplement your income.

You can also use regular budget evaluations to prepare for future plans. Some individuals may feel more comfortable cutting back discretionary spending for the month leading up to a family vacation or the holiday season.

Step 5: Commitment

Creating a budget is a great step in working toward a more financially sound future for you and your family. Making a commitment to stick to the budget you created is what will get you there. The best way to stay committed to your budget is to keep a realistic outlook, evaluate it often and don’t be afraid to make adjustments. A budget is all about balance.

Managing Your Budget When Unexpected Bills Arrive

Once you have a workable budget in place, setting aside $50 per week could add up quickly in an emergency fund. In a year you would have $2,600 set aside, plus any interest, for when the refrigerator stops working or when the transmission blows.

Experts recommend looking at your withholding taxes to find hidden cash. If you receive a large refund every year, perhaps you need to change your filing status to receive additional money in your paycheck to put toward an emergency fund. Unless that is, you are putting your tax return funds into that fund.

Medical crises, in particular, can turn a balanced budget upside down. Negotiate significant medical expenses, such as an emergency hospital stay, with the hospital. (Almost all hospitals negotiate fees.) Often if you contact them immediately instead of waiting until the amount goes into collections, the hospital or provider’s office can set up a payment plan.

If not, a medical bill consolidation may help, as it allows you to combine all your medical bills into one lower monthly bill through an agency or a bank loan. This makes it easier on you, and the arrangement protects your credit score because you can make on-time payments. The downside is it may take you longer to pay your debt in full.

BudgetingHow to Manage a Budget

Budget Your Money With the 50/20/30 Guideline

When it comes to money, there’s certainly no shortage of ways for us to spend it—food, rent, retirement accounts, a down payment on a house, gym memberships, gifts (you get the picture).

In fact, it’s why LearnVest Planners are often asked one key question: “So where should my money be going?”

When it comes down to it, the answer is different for everyone. You may be in a hurry to pay off debt, so you’re willing to spend less on eating out in the meantime. Or you might live in a city where rent is prohibitively expensive, so you have to allocate more of your paycheck to housing.

So what’s a budget-perplexed person to do? While we can’t give you a hard-and-fast rule for where to put your money, we did come up with a general benchmark to consider if you’re just starting to set up a budget: the 50/20/30 guideline.

Whether you’re a parent with two kids or a recent college grad working your first job, this 50/20/30 guideline can help you not only figure out how much you may want to allocate to each area every month; it can also help you determine the order in which your money can be allocated.

50/20/30 Broken Down

The 50/20/30 guideline can be easy to follow because instead of telling you how to break down your budget across 20 or more different categories (who could keep track of that?), it splits everything into three main categories:

  1. Fixed Costs – These are bills and expenses that don’t vary much from month-to-month, like rent or mortgage payments, utilities, and car payments. We also include subscriptions, such as gym memberships and Netflix accounts, in fixed costs because you’re committed to paying them on a monthly basis.

When it comes to fixed costs, we suggest that you aim to keep your monthly total no more than 50% of your take-home pay.

Tip: If you’re trying to make more room in your budget, fixed costs can be a great place to trim. For example, are there any bills or subscriptions you could reduce or cancel entirely?

  1. Financial Goals – Consider putting at least 20% of your take-home pay toward important payments or contributions that will help you secure your financial foundation. At LearnVest, we believe there are three essential goals everyone should strive for:   paying down credit card debt, saving for retirement and building an emergency fund. But your financial goals can also include larger savings priorities like a down payment on a new home.

Tip: LearnVest Planners recommend automating your savings contributions and debt payments to help make sure you’re saving consistently—and to help ensure you don’t miss a payment!

  1. Flexible Spending – Finally, consider budgeting no more than 30% of your take-home pay toward flexible spending. These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or gas.

We include groceries in flexible spending because even though food is a necessity in your budget, how you spend on food can vary. Some weeks you might eat out more, while others you may buy more groceries to cook at home. At LearnVest, our Planners often say that it doesn’t matter what you spend your money on each month in this category, as long as you’re aware of your spending and not going over your total flex budget each month.

Tip: To determine your flex-spending amount, we recommend first subtracting your fixed costs and financial goal contributions from your take-home pay (the amount that hits your bank account after taxes and any 401(k) contributions). This way, you’ll know the amount that’s left for flexible spending is truly yours to spend however you want.

Seeing 50/20/30 in Action

The 50/20/30 guideline is just that—a guide. It can be a helpful benchmark when you’re assessing where your money is going, but it can also be adjusted to your specific lifestyle and goals.

One Note About Retirement

As you might have noticed, the 50/20/30 guideline applies only to take-home pay. Any contributions you make to retirement before your paycheck hits your bank account are not included. For that reason, you may be contributing more toward your financial goals than this breakdown would suggest. And you may find that it’s a good thing to keep that retirement money out of sight, out of mind!

(If you are self-employed and don’t have your retirement contributions withheld from your paycheck, consider contributing more than 20% of your take-home pay toward your financial goals, if you can afford it. This could help you make sure you’re contributing enough to stay on track for retirement.)

How the 50/20/30 Guideline Can Apply to Your Own Budget

If you’re just starting to put together a budget, the 50/20/30 Guideline can serve as a useful benchmark for how to divvy up your paycheck. When it comes down to it, though, how you spend (and save) your money depends on your specific goals and lifestyle.

As part of the LearnVest Action Program, you can work with a dedicated Planner who can give you a clear plan of action for your money, including helping you to create a budget that has the right balance for you. If you’re curious, you can get started by trying out our online budgeting tool for free.


MistakeTips, Tricks, and Pitfalls to Avoid

Everyone makes financial mistakes from time to time – that’s just part of life. However, knowing about common mistakes beforehand can reduce your odds of making them. Let’s take a look at some of these common budgeting mistakes:

Mistake #1 – Forgetting to Write Down Expenses

It’s impossible to stick to your budget if you don’t know where your money is going. Ideally, you need to keep track of every single purchase, whether it’s something small like a parking garage fee or something bigger like a new television. The best way to remember everything you buy is to update your budget each night before you go to bed while your purchases are still fresh in your head. You could also carry around a small notebook so you can jot down your purchases throughout the day as you make them, or make all your purchases with the same debit or credit card (effectively having someone else create the spending list for you).

The most simple budget-tracking tool is the cash envelope method. This involves taking several envelopes, writing the name of the budget category on the outside (like “groceries” or “fun money”), putting the amount of cash you are allowed to spend each month in them, and then making sure you don’t run out of that cash before the month is over. This method will prevent you from overspending, but you won’t reap the benefits of knowing exactly where your money goes unless you can remember to replace the money you take out with the receipts of each item you bought.

Mistake #2 – Intentionally Not Writing Down Purchases

One of the ugly truths about budgeting is that when you keep track of your expenses, it’s painfully clear when you’ve gone off track. That’s the whole point, though, and every day is a fresh chance to make better decisions. Go ahead and write it down when you’ve gone over your budget because that negativity you feel will help prevent you from overspending more or doing it again. Just think of this step as damage control – don’t skip writing down expenses just because they don’t match up. Own up to your purchases and then move on.

Mistake #3 – Buying On Impulse

If you buy a pack of gum in the checkout lane every time you go to the grocery store and you go to the grocery store twice a week, that seemingly inconsequential purchase is costing you $8 a month, or almost $100 a year. Add a few impulse buys at a few other stores over the course of a month and no matter how inexpensive they are individually; they will add up. There’s nothing wrong with buying gum, but if you notice by reviewing your budget that you’re buying it at a rate of 52 packs a year, you can plan to buy your gum in bulk at a big box store for a third of the price and save money. Writing down even those minor $1 purchases every time can help you spend more wisely in the long run.

Mistake #4 – Becoming the Victim of Budget Busters

Sometimes you go out to do something or buy something expecting it to cost a certain amount of money – an amount you’ve budgeted for – but when you get home, you’ve spent much more. How does this happen?

Perhaps you decide to go out with some friends on a Saturday night, and you think you’re just going to a bar, but once you get there, the group decides to go out to eat. You’re already along for the ride, so it’s easier to give in to the pressure to join in on the food rather than be the odd one out. In that same scenario, after you’ve had a couple of drinks, money may not seem like such a big deal, and you may buy everyone a round against your normally better judgment. (Learn more by reading Budget Without Ditching Your Friends, see source below.)

These things happen, and you won’t always be emotionally strong enough to prevent them. However, if you know that you have a tendency to buy more than just one thing when you go to the store, or if you know that your friends have a tendency to change their plans at the last minute, either avoid these activities or create a bigger budget for them ahead of time.

Mistake #5 – Being so Frugal it Makes You Miserable

Budgeting is like dieting: If you try to deprive yourself too much, you’ll just binge later and throw all your hard work out the window. A spending binge can set you back far more than treating yourself occasionally, so go for the occasional minor splurge. Buy that bottle of wine or those new flowers for your yard. Let yourself take a vacation. Just keep your treats within your spending limits, and you’ll be okay. This may mean you’re saving $200 a month instead of $300, but it’s better than saving $300 a month for six months, making yourself miserable in the process, then going out and blowing $2,500 in the seventh month.

Mistake #6 – Ignoring the Time Value of Money

Sometimes the cheapest way isn’t the best way. If milk, bread, and eggs are cheaper at one grocery store and chicken, butter and cereal are cheaper at another, you shouldn’t go to both stores every week to get the best possible deal on each and every item. Besides, unless you have incredible self-control, you’ll probably be tempted to buy something at the second store that wasn’t on your list, thus defeating your whole purpose.

Correcting Your Mistakes

Correcting your budget mess-ups isn’t hard, it just takes a few moments to realign your thinking patterns.

Think about your spending not only in terms of money but also in terms of time, aggravation and sanity. When you have limited time, determine where your money-saving efforts are best spent. For example, should you focus on cutting out coupons to save 30 cents at the grocery store, or would you come out further ahead by using that time to switch over to a checking account that doesn’t charge a monthly maintenance fee and a low balance fee?

Everyone will go off his or her budget occasionally no matter how much money is available. It’s human nature to be imperfect. Accept it as a certainty that will happen. While it shouldn’t be an excuse for poor choices, the best way to correct your mistakes is not to beat yourself up for them. Take what actions you can to correct the mistake – maybe you can return something you purchased, or make up for the extra spending by selling something you own on eBay. Maybe there’s nothing you can do except vow to do better next time. Then, forgive yourself and start fresh.

If you need help staying on track, ask someone to hold you accountable. This could be a friend, relative, significant other, spouse or even a financial advisor. Pick someone with whom you feel comfortable discussing money. This doesn’t mean you have to share with them the details of how much you spend and make, but you should at least be willing to speak honestly with this person about what your goals are, what steps you are taking to achieve them and whether you are staying on track. It’s important to pick someone who won’t be judgmental if you slip up or set a goal they don’t necessarily agree with.

Staying On Track

For some people, an independent professional, such as a financial advisor may be the best bet for keeping you in line without picking a side. You may think you can’t afford the hourly fee, but if you’re routinely spending $300 a month on items you don’t need, and being held accountable by a professional, only costs you $100 a month, you’ll still be coming out ahead. On the other hand, you don’t want to go too far in the other direction and pick someone who will give you no flack whatsoever if you aren’t achieving your goals. Pick someone who has been supportive in the past and wants to see you succeed.

If you can’t afford a financial advisor but seek the neutrality and confidentiality of a third party, you may be able to find a local government agency or nonprofit organization that offers credit counseling, debt management or money management assistance. Though you may have to provide documentation proving that you qualify for their assistance, services designed to help the low-income or deeply indebted will most likely be free – beware of those wanting to charge you a fee.


Budgeting SoftwareChoosing a Budgeting System

There are four primary methods for creating, tracking and monitoring a budget. Each system uses different techniques, but they all center on organization and attention to detail.

  1. The Notebook and Pen: This is the oldest method for budgeting, and it’s also the least expensive option. With this approach, you only write down all of your sources of income and all of your expenses. As long as they even out, you’re good to go.
  2. The Spreadsheet: The most popular spreadsheet software used for budgeting is Microsoft Excel. Many websites offer free samples of Excel budgeting worksheets that consumers can use, instead of trying to create their own. A spreadsheet lets you organize a lot of information easily and does the math for you.
  3. Free Online Software: There are several free web-based software programs that can help with budgeting. Such programs like Manilla and allow you to create and group your expenses into categories and track your spending, so you can see exactly where your money is going as soon as the transaction takes place.
  4. Financial Software: There are also financial software programs, but you need to be computer-savvy to use them. Quicken and Microsoft Money are good if you have a great deal.

You can also check with your local credit union or bank for tips and tricks. Your saving institution may even have budgeting worksheets on hand to get you started. If you prefer, the U.S. Financial Literacy and Education Commission (FLEC) has many budgeting worksheets and resources to help you at any stage of life.

Budgeting Tools

Finding the right tool can make any job easier. It’s as true in carpentry as it is in personal finance. The right budgeting tool can make managing money more effective, efficient, and even enjoyable.

With that in mind, here is a list of some of the best budgeting tools available today. Some of these options are free, and you may even find some surprises in the list.

Mint (Our Choice)

Mint, which is owned along with Quicken by Intuit  is effectively the online version of Quicken. Once bank accounts, credit card statements, and even investment accounts are linked, Mint provides a wealth of information on spending, budgets, and even trends.  Mint can also track your income, assets, liabilities and net worth. There is no cost for using Mint. The website relies on advertising revenue so that you will see offers of financial products ranging from brokerage accounts to credit score monitoring.

YNAB (You Need a Budget)

YNAB uses a familiar spreadsheet layout that’s very easy to use and understand. Creating a monthly budget takes just a few minutes.

YNAB is designed to encourage you to live on last month’s income. Rather than creating budgets based on future income, you budget based on income you’ve already earned. In so doing, you give every dollar a job, as YNAB describes it. It takes some time to adjust to this approach, but the result is an end to living paycheck to paycheck.

Finally, YNAB offers excellent reports and graphs. These tools make it easier to see where your money is going so you can make adjustments as necessary.

It’s worth noting that YNAB does not automatically connect to financial institutions to download transactions. Instead, users must download transactions from their banks and credit card companies, and then upload the transactions into YNAB. The process takes me about five to 10 minutes each month. Many prefer this approach over providing usernames and passwords, even though it does involve a little more work.


Quicken is the grandfather of budgeting tools. It’s designed to handle all of your finances, including budgeting, investments, bill pay, and reporting. Unlike YNAB, Quicken will connect to your financial institutions and download transactions. You can sync data between devices, so you always have access to your accounts.

Quicken is a solid money management tool and it does what it promises to do. There is, however, one caveat. The Mac version of Quicken is not nearly as robust as the PC version.



The power of good spreadsheet should never be underestimated. Tracking spending with a spreadsheet doesn’t come with the bells and whistles that many of the other options listed here do, but it gets the job done. One big benefit is complete control over the data you track and how you track it. You also avoid giving access to your financial data to an online account aggregator.


Once you’ve set your budget goals, you need to develop the habit of tracking your expenses on an ongoing basis and make sure the spending stays within the limits you’ve set.  Creating a budget is a great step in working toward a more financially sound future for you and your family. Making a commitment to stick to the budget you created is what will get you there. The best way to stay committed to your budget is to keep a realistic outlook, evaluate it often and don’t be afraid to make adjustments. A budget is all about balance.




Proper Wealth Management’s (“Proper”) blog is not an offering for any investment. It represents only the opinions of Jared Toren and Proper . Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest. Jared Toren is the CEO of Proper, a Texas based Registered Investment Advisor.   All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Information contained herein is believed to be accurate, but cannot be guaranteed. This material is based on information that is considered to be reliable, but Proper and its related entities make this information available on an “as is” basis and make no warranties, express or implied regarding the accuracy or completeness of the information contained herein, for any particular purpose. Proper will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this newsletter caused in whole or in part by its negligence in compiling, interpreting, reporting or delivering the content in this newsletter.  Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security or financial instrument, nor is it advice or a recommendation to enter into any transaction. The material contained herein is subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Proper may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. Proper Wealth Management is not responsible for any errors or omissions or for results obtained from the use of this information. Nothing contained in this material is intended to constitute legal, tax, securities, financial or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this material should not be acted upon without obtaining specific legal, tax or investment advice from a licensed professional.