It’s great to understand the benefits of investing, but there’s more you need to know. Budgeting is an integral part of saving. A budget is a written plan that allows you to track your money as it comes in and goes out.  It can help you establish your priorities (like saving your money) and help you live within your means (avoiding credit card debt). Creating a budget is the first step to saving, in that it tracks, estimates, and adjusts your income and expenses over time.  Budgeting also compares projected income to your estimated expenses.

Over the years, as my income began to increase, the next order of business was to buy a house, which required a new budget structure to calculate what I could afford on down payment and property tax.  Now that I own a house, my focus has been saving for my kids’ college tuition, and again, my retirement.

I started using a budget after college so I could figure out how to pay for living expenses.  I mapped out my major expenses and compared them to my monthly income.  I was living in San Francisco and earning $36,000 a year. For the first few years, I was living paycheck to paycheck. By budgeting, I figured out how and where to cut corners on expenses and pay off the credit card debt I had accumulated in college.  After I had paid down my credit card debt, I began aggressively saving for retirement. 

Budgeting is a lot like going to the gym. It’s easy to implement and adjust, but if you start skipping days, you’ll skip more days. And if you’re like me, the more days you skip, the more weight you gain.  Benefitting from a budget requires consistency and discipline as well. Before long, you will notice measurable differences.

Websites such as,, and can help you establish a budgeting template that works for you. You can also do a quick search for household budget worksheets online, and there is no shortage of helpful videos on  I prefer to create a monthly budget because it allows me to measure how I will be doing by the end of the year.

An effective budgeting plan starts by including all income sources such as wages (net of payroll deductions), student loans, financial aid, family support, and any other sources of income.  Review your paystubs, online banking statements, and any other documents that report income.  Sometimes you will receive annual bonuses or tax refunds.  If you create a monthly budget for the entire calendar year, you can account for those one-time payments like financial aid checks and stimulus packages.

Next, you will focus on monthly expenses.  You will need to include housing costs, tuition, other related school expenses, food, utilities, transportation, debt repayment, clothing, entertainment, and other miscellaneous expenses.  The following table is a good example of the budget I create.  It presents three top line items: (1) Total Income, (2) Total Expenses, and (3) Ending Cash.

Budget Example

Fixed expenses such as rent, insurance costs, and utilities (power, water, etc.) remain relatively the same from one month to another.  As a result, fixed costs are easy to predict and estimate. Controllable or variable expenses, on the other hand, change based on your priorities and available funds. This includes groceries, eating out, gas, clothing, and so on. While variable costs are also easy to predict, they fluctuate more than fixed costs. This is where wiggle room can lead to frivolous spending. If you’re not careful, the amount you spend is equal to the amount you bring in. Therefore, it is important to include the actual amount you intend to save as an “expense” line item in your budget rather than just leaving it to chance. 

It’s wise to have a separate account strictly for savings.  Some employers will even split your direct deposits into separate accounts, so you never have to touch your savings, making it much easier to control your expenses.  Additionally, studies have shown that you are far likelier to achieve your financial goals if you automate the savings process (like having your employer deduct the amount directly from your paycheck). It also requires you to proactively take money out of your savings account to purchase something, which is never a good feeling.

Some budgeting websites will provide you benchmarks based on U.S. averages, against which you can measure your own spending and set goals for your expense categories. If you find yourself spending more than the average American household, you should ask yourself which expenses can be cut or minimized.

Another way to categorize your expenses is to identify needs versus wants. Your needs come first: food, basic clothing, safe housing, medical care, and other obvious expenses. That’s not to say that you can’t control those expenses at all. For example, you can always turn your lights off when you leave a room, keep the thermostat at a reasonable temperature, and take shorter showers.  Your wants are much lower on the totem pole. Wants include dining out, streaming services, shopping sprees, video games, concerts, and all other forms of entertainment and fun.

In college, I got in the habit of saying “no thanks” to everything at first pass. No to expensive cocktails, no to extended warranties, no to 35 cents more for a large popcorn or soda. After a while, you will also begin to see patterns in your spending which will allow you to better manage your money. The small things add up quickly.  Personally, I view the world as one vast network of people and companies looking to trick me into spending my money.  I find the more conscious I am about where my money goes, the more likely it is that I say no to unnecessary things.

Marc Andrews’ book Hidden Persuasion highlights the methods advertisers use to convince us to buy their products. We think our decisions are made consciously and rationally based on our wishes, interests, and motivations, but “most of our decisions in daily life are made on an unconscious level, which means we are quite vulnerable to persuasion attempts which affect our unconsciousness.”[1]  There is a litany of online articles and books dedicated to this issue.  If you can’t get your expenses under control because you consistently overspend, you may want to further explore the psychology behind your purchasing behavior.

[1] Andrews, M., Van Leeuwen, M., & Van Baaren, R. (2014). Hidden Persuasion: 33 Psychological Influence Techniques in Advertising. Laurence King Publishing.

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