All financial goals generally start with a budget (and with budgeting). Use these steps to help you figure out your own income-expense plan.
Have a budget? You’re in good company: 86% of people have mapped out expenses and income.
Budgeting is one of those financial fundamentals; master it, and your financial needs and goals might get a lot closer to reality. But it’s bigger than just tracking monthly income and expenses. It’s also the discipline of sticking to (and adapting) what you spend and save. How do you build confidence in doing both? Whether you’ve never budgeted before or want to fine tune years of disciplined spreadsheets, these steps can help.
The first step in any budget is to figure out your expenses, from fixed to flexible, critical to inconsequential. A budget worksheet (PDF) can help, or you can choose to do it however it works for you, from an app to a spreadsheet or pen and paper.
Expenses generally fall into two broad categories:
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Fixed: Bills you must pay, including a mortgage or rent, loans, and utilities. The total is typically also fixed.
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Discretionary: Expenses you have more control over such as clothing, eating out, or hobbies. Because fixed expenses must be paid, discretionary expenses are the ones with the most wiggle room.
One thing to consider: Depending on your income and expenses, you can include allotments for financial goals that fall into fixed or discretionary expenses. For example, maybe you know you’ll need to add a car in the next year, and want to save a down payment. You can consider this a fixed expense, which helps you to budget for it no matter what.
Discretionary expenses may also take the form of budgeting for flexible goals like a big trip or boosting emergency savings. (Not sure what your goals are? Start with this financial goals worksheet PDF.)
Once you’ve done that, it’s time to ask yourself those difficult “why” questions. Is your discretionary spending reasonable? Are some expenses keeping you from saving for other types of goals? If so, what are you willing to change?
Once you have a monthly total of fixed and discretionary expenses, subtract it from your monthly income. Do you have enough to cover everything, and if not, what can you revise? If you have leftover funds, how do you want to allocate them?
If more than eight in 10 Americans are spending too much, how are they covering it? Nearly half turn to a credit card
Here’s the thing: Budgets aren’t set in stone. Circumstances change, sometimes positively and sometimes not. You may get a job with a higher income, or get let go unexpectedly. You may have an unexpected car repair bill or get an unforeseen tax refund. You may also just find that what you budgeted for a particular expense simply isn’t enough (or is too much) for the realistic financial goals you’ve chosen. If you’re consistently going over in a category, you have to decide if 1) you can afford the additional expense or 2) how you can make a permanent change.
Creating a budget is uniquely personal, and your discipline is, too. You may do a weekly check in on expenses, or once a month may prove the right cadence. An app may give you the insights you want and need, or a spreadsheet can work just fine, too.
Tech can help. When it comes to paying bills on time or paying them no matter what, there’s a tool for that. Auto pay is great to set it and forget it, and if you’re budgeting a certain amount for savings every month, you can simply rely on auto transfers and deposits.
What’s next?
Did you know that your Principal account offers a free budgeting tool? Simply log in to your dashboard and scroll down to “Your budget.” Click on “Manage your budget” to add accounts, categories, expenses, and income.
