Budgeting Step 3: Put Your Plan on Paper

Part Four in Our Series on Budgeting to Reflect Your Values 

Start this series from the beginning. 

Alright, so we agree.  There might be room to change our spending habits to reflect what we actually want.  But how?  We make a plan, and we write it down.  I have tried all kinds of budgeting software out there, and I think a lot of it is great, but you know what I think is even better?  A good old-fashioned spreadsheet. I recommend the one I use for myself and my clients.  Email me at SVail@lpl.com, and I’m happy to send it to you. 

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Determining Necessary but Non-Fixed Expenses

Now, let’s fill in the necessary but non-fixed expenses - groceries, gas, things like that. Based on what you discover in step 1, make your best guess.  It doesn’t have to be perfect. Is “Total Income” still more than “Total Expenses”?  Good, we have some discretionary income. 

Before we move on, let’s take a look at the fixed expenses - are they all necessary?  Do they need to be this high?  Can you cancel the cable bill?  Could you call around for quotes to lower your car insurance?  Once the lease is up, could you live in a less expensive place?


Determining Discretionary Income

Once we’ve got your necessary expenses written down, we get to do the fun stuff!  Subtract Total Spending from Total Income - this is your discretionary income, the money you get to decide what to do with. 

So, in our example:

 $3,000 income - $1,869 necessary expenses = $1,131 discretionary income

Deciding What to Do with Your Discretionary Income

First, let’s decide on a fun money” amount.  This is the money you get to spend, without guilt, on things like going out to eat, new clothes, entertainment, and all the other fun but not totally necessary expenses.  What is a reasonable number?  Let’s add that to our spreadsheet.

Now, you get to decide what financial goal to go after first with the rest of the money.   

Do you want to pay off the student loans faster?  Cool, let’s allocate some of this money to an additional payment.  Want to save for retirement?  Great, let’s put some money in that category.  Which categories you decide to fund and how much you fund them will depend on what your goals are, but the important thing is to start putting them down on paper. 


Once you’re done, “Total Income” should equal “Total Spending.”  Voila! 

Congratulations! You have a budget!              

Keeping Track of Your Progress

While you’re at it, let’s write down all your debts, target contributions for the year (as determined by your budget), and what the goal is for this time next year.  Let’s do the same with your assets.  This will become a handy blueprint for your financial picture that we’ll come back to as we keep track of your progress.


Net Worth = What You Own - What You Owe  

You see that Current Net Worth number on the right?  And the Target Net Worth in a year?  See how that’s different?  That’s the goal.  In fact, that’s my job as a financial advisor.  We want to see that number move in a positive direction.  That’s how we’re going to measure how you did financially this year.  We don’t look at how much debt you're in or how much money you’ve accumulated, but by whether or not we’re moving the needle in the right direction.



About the Author

Stephanie Vail is a member of the Custer Financial Advisors team.  She specializes in helping millennials with financial literacy and planning.  To learn more about Stephanie and Custer Financial Advisors, visit www.CusterFinancialAdvisors.Com or email Stephanie at SVail@lpl.com.