Budget and Spending Plans

Budgets and Spending Plans | Financial Education

A budget is a spending plan. It’s based on how much you make in income and your monthly expenses. By understanding your monthly income and expenses, you will be better able to manage your cash flow and determine how much money you can save and what debt you can take for mortgage or car purchases.

Creating a Spending Plan and Budget For The Life You Want 

The biggest issue with budgets is that they don’t address the reasons you work which is to live a life you’ve dreamed. However, for many, it’s difficult to stick to a budget because we don’t know how it relates to living life.  Having a budget is the single most important tool to get you from where you are today to where you’d like to be tomorrow.

There are options in using our grandmother’s method of envelopes and jars or mobile apps and online tools. First, understand why you should budget along with the common pitfalls to overcome so you can create and stick to a budget.  Achieve your dream lifestyle and financial goals with a budget.


The plan is to discuss the benefits and process of budgeting.  The goal is to understand how budgeting can lead to living richer lives.  The takeaway is to know key terms, identify your dream lifestyle, set financial goals and start the budgeting process.

Do you want to be the Starbucks loving apartment renter or the Folgers Crystal’s homeowner?

Psychology of Spending

Saving a few extra dollars a month won’t get you into a new home.  Knowing exactly where your money is going will help you reach your financial goals.

• Are you seeking instant gratification delaying true satisfaction?

• Do you know the differences between “needs and wants?”

• Are you sacrificing “what you love for what you like?”

Habit Spending

– Not out of necessity or wants just habitual (e.g. morning coffee, lunches, brand loyalty).

Bargain Hunting

– Proactively seeking discounts and sales to validate a purchase that may be unnecessary.

Impulse Buying

– Perception of value or want/need from actual reality.

Retail Therapy

– Mood enhancing because it mimics the feeling you’re in control.

Saving versus Spending

Spending over Saving

Unknown Future: Spend rather than save because instant gratification is now and future need is unknown.

Present Bias: Making inconsistent decisions over time favoring instant gratification over long term returns.

Savings over Spending

• Prioritize saving money immediately and use automation tools.

• Reward yourself for reaching savings goals.

• Build wealth and avoid lifestyle inflation.


What tool can help you prioritize savings, curb spending and achieve your goals? The six letter word – BUDGET and the reasons we don’t:

• Associated with limitations.

• Realizing there might not be enough money.

• Fear lifestyle change.

Budget = Spending Plan

What is a Budget?

Defined as a financial spending plan.  It helps achieve quantifiable financial goals.  It’s a tool to measure performance and cope with potential adverse situations. A budget is a financial framework to support lifestyle choices that includes income, expenses, financial goals, savings and debt repayment plans.

Budgeting Mindset

Excuses to Start 

• Tedious and boring
• Easy to procrastinate
• Feeling there is never enough money
• Hard to confront past decisions
• Goals are overwhelming
• Money isn’t an issue
• Fear of lifestyle changes

How to Start

• Be specific and think success
• Stay realistic and organized
• Track everything (money in/out)
• Monitor progress and expect setbacks
• Reward yourself along the way
• Make it easy and use free tools

Download the Budgeting Worksheet.

Budgeting Advantages > Disadvantages

Reasons Why You Should Budget

Creates a framework to reach milestones and achieve quantifiable goals. Budgets help you buy things you need and want through prioritization. It allocates resources and reduce waste. It also supports reaching your dream lifestyle.

A budget isn’t an exercise at deprivation but a tool to increase awareness of what’s happening with your money.

Budgeting Process

1. Calculate your net worth

2. Determine what you want to accomplish

– Lifestyle choice (how you want to live)

3. Financial goals (what you want to buy/achieve)

4. Track your spending

– Debit/credit cards, receipts, software programs, mobile apps

5. Develop your budget

– Calculate all income sources

– Identify fixed and variable expenses

– Set savings and debt repayment goals

6. Implement your budget

7. Analyze your budget and make adjustments

Calculate your Net Worth

Net worth is the amount in which your assets exceed your liabilities. The difference between what you own versus what you owe.

• List Assets – Savings, property, investments, etc.

• List Liabilities – Debts owed, loans, mortgages, taxes.

Download the Net Worth worksheet.

Envision Your Dream Lifestyle

A lifestyle goal is how you live or plan to live your life. It’s the style of living that reflects your attitudes and values. Don’t confuse living a lifestyle with the ability to purchase and consume. From buying expensive cars or homes and to another extreme frugality. Envision the lifestyle you want to live and then, identify and prioritize the financial goals.

Savings Goals

Characteristics of Financial Goals

• Specific – A cost or price point with timeframe and deadlines
• Measureable
• Reasonable and realistic

Identify Your Financial Goals

What do you want to accomplish?

• Financial goals are monetarily quantifiable aspects of your life.
• They are things that can be purchased such as goods, education and experiences.
• They are specific goals such as savings goals, debt repayment and college tuition.

Financial Goals


Emergency fund – Calculate monthly living expenses and save 6 months in a liquid savings account.
Short-term goals – Holiday spending, vacations and big ticket items.
Mid-term goals – Mortgage down payment, car purchases, etc.
Long-term goals – 401(k), IRA contributions, investments.


• Pay off all debt obligations. – Debt is a ball and chain preventing you from achieving financial freedom.
• Discover debt repayment options.
• Identify additional funds to maximize debt repayment.

Budgets should evolve as goals are reached and desired change in lifestyle.

Starting a Budget

1. Stay clear of mental accounting. – Use the Traditional or Automated methods.
2. Paper/Excel or software (e.g. Mint.com).
3. Learn if you’re living beyond your means. – Categorize an entire month’s income and expenses.
4. Calculate the difference to determine how much money is coming in versus going out. – Realization you may need to cut back to achieve goals.

Download a Budgeting Worksheet.

Basic Elements of a Monthly Budget

Phroogal Monthly Budget Example

Budget Method: Step-by-step

1. Calculate your income and expenses.
2. Make a list of all income sources and calculate total monthly income.
3. Keep a record of one month’s fixed expenses and discretionary spending.
4. Organize based on categories and total expenses such as housing, transportation, food, utilities, credit card payments, etc.
5. Using paper or a spreadsheet, calculate your income compared to your expenses.
6. Analyze the results and calculate how much you can save and how much more you can pay towards debt.
7. Determine where you can decrease fixed expenses and cut spending to free up money to prioritize debt repayment and grow savings.
8. Adjust your budget accordingly as financial goals are met.

Download a Budgeting Worksheet.

Budget Methods: Buckets

Difficult to track every little expense thus making simple bucket methods useful.

Caveat: The more details you know about your spending habits the better.

60 Percent – 60% on monthly expenses. Includes housing, utilities, food, transportation and other fixed payments. – 10% on retirement, 10% on short term savings, 10% on debt reduction, 10% on spending

70-20-10 – 70% on living expenses. Monthly expenses such as rent and car payments, memberships, and discretionary spending. – 20% on savings goals. Money save for retirement (10%), emergencies (5%) and specific goals (5%). – 10% on Debt Repayment. Pay down debt obligations and credit cards.

50-30-20 – 50% on fixed costs. Monthly expenses such as rent and car payments, memberships, subscriptions, etc. – 20% on financial goals. Money set aside for debt repayment and savings/retirement goals. – 30% on personal spending. Discretionary flexible spending. (Source: LearnVest)

The right budget doesn’t keep you from spending but tells you how to save and spend your money to maximize enjoyment.

Budgeting Should Help You

1. Save and spend your money.

2. Pay yourself first.

3. Repay debt and loan obligations.

4. Reduce expenses.

5. Increase income earnings.

6. Focus attention on priorities.

7. Live your dream lifestyle.

Stay Motivated

• Visualize success

• Stay organized

• Be realistic

• Track and monitor progress

• Expect setbacks

• Reward yourself along the way


There are a number of resources available to help you budget. Download our worksheets to start the process but you can always ask your financial institution about personal finance management tools or budgeting apps associated with your online banking service.

Download the net worth worksheet.

Download the budgeting worksheet.

Budgeting Apps and Tools

Check out these tools we use ourselves to help you organize your finances and track your spending.

Mint.com  – Pulls all your financial accounts into one place. Set a budget, track your goals and do more with your money, for free!

Personal Capital – A money management app designed to help you manage every piece of your financial life from your checking and savings accounts to debts, investments and more.