For the most part, everyone knows what budgeting is, or at least understands what it implies. The problem is, just like with eating healthy and exercising, knowledge is not the problem – a lack of self-discipline is!

In 2015, Bankrate.com did a survey that found that 82% of Americans budget! That’s awesome! However, another finding in the same poll was that less than 40% of people interviewed had enough money to pay an unexpected $500 or $1,000 bill. Now, I’m no Sherlock Holmes, but if 82% of Americans budget, but less than 40% of them have the money to pay an unexpected bill, then it seems that some people aren’t telling the truth! Or, at least not the accurate truth! As it turns out, most of the people interviewed kept a “mental” budget, only budgeted for one or two types of expenses, and clearly, most didn’t actually budget.

In 2013, Gallup conducted a more thorough poll using more specific questions and came to very different conclusions than the prior survey. By asking specific questions they found that 32% of Americans budget their income and household expenses each month. I’d say this still seems high, because I can’t say that 1 in 3 people I know do a monthly budget – can you? But, again one of their findings is that most often, people only budget for one or two areas of their spending, but even then only up to 39% of people even do that! (for more of the findings, see http://news.gallup.com/poll/162872/one-three-americans-prepare-detailed-household-budget.aspx)

There’s an important issue to be upfront about before we get into the nuts and bolts of budgeting. Why would we Americans say that we budget when we don’t? Are we liars? Or is it more like how we tell the Dr. we “eat healthy and exercise” because we went to the gym last week and had lettuce on our double bacon cheeseburger and we just need one more refill on our Lipitor until we reach that healthy weight. This seems plausible to me.

According to the book Thinking, Fast and Slow by Daniel Kahneman, we are internally biased to remember the times we did things right and we fail to realize how often we do something wrong. It’s human nature to think the best of ourselves and that we’re doing things right. But unfortunately, human nature won’t lead us to financial independence, but recognizing our shortfalls and our individual thinking traps will. (side note – Kahneman’s book is great and very intriguing, I highly recommend it!)


Now, back to budgeting AND being honest with ourselves! Simply put, budgeting is telling your money where to go instead of wondering where it went at the end of the month (FYI, this is a John C. Maxwell quote often attributed to Dave Ramsey because he says it on air all the time!). More technically, a budget is an itemized plan for how you are going to spend your money for a given time-period, usually a month.

Another common name for a budget is a spending plan. For all intents and purposes, the two terms are largely synonymous, and I’ll use them as such. Both involve you planning what will happen with your income. The only real difference is that usually budgets are “$0 dollar based” meaning there should be $0 dollars left in your checking account at the end of the month because you perfectly planned out your spending for the month.

Honestly, I hate budgets but love spending plans even though it’s 99% semantics. The way I view it, the process of budgeting is creating a spending plan for your money. It’s that simple. I like the idea of a spending plan better because there’s more flexibility implied in the name than budgeting, and I don’t think I’m alone in this. That’s really it, but on this site, I’ll use both terms depending on the context.

Ultimately, the spending plan is there to guide your spending and saving behaviors (remember, behavior is the most important aspect), not hold you back! When done right, your spending plan should be what tells you, “go ahead, buy that,” “do that fun thing,” or “splurge on that vacation you’ve been saving up for” because you have the money saved in advance! Spending plans may appear restraining, but when done right, give freedom! They allow you to spend your money without guilt because it’s what you planned to do, not what you reflexively/emotionally did when you felt bad about yourself, hungry, or saw the latest iPhone come out!


  • It takes effort and time, people are busy, and it seems daunting.
  • They don’t know how to budget or even if/why they should budget.
  • They don’t know how much money is appropriate to spend in different categories, so they spend what they spend without knowing what that will do for them.
  • They think they don’t make enough money to budget because they can barely pay all their bills the way it is (FYI – these are the people who need to budget the MOST!).
  • They don’t like how restraining a budget seems.
  • They’ve never seen a budget actually work.
  • They just don’t want to, it’s more comfortable to complain about their lack of money and issues. (PS – I’m not saying financial issues, especially limited income aren’t real challenges because they are, but they aren’t reasons not to budget! Just a preemptive clarification based off lots of prior conversations…)


So, why is it important to budget? First, most people only know a few of their financial numbers. A large study completed in 2011 found that a shockingly high percentage of Americans are not financially literate, meaning they don’t understand some of the basic principles of finance or how those principles apply to their lives. (Lusardi and Mitchel, University of Michigan Retirement Research Center report) For example, most people know their paycheck amount, their rent, and car payments but have no idea about their grocery bills or how much they spend eating out. What about how much money you spent on clothes last year, any idea? What about entertainment, vacation, gasoline, or the even bigger question of how much money did you save/invest last year? And even more concerning, people don’t understand the impact of inflation, understand how compounding interest can work for your benefit, or whether it’s better to purchase something today or in the future! This knowledge plays a key role in your future, and that’s why I’ll do my best to systematically lay out the knowledge with an applicable plan to help people get started.

Having a good spending plan helps you learn where you stand financially. It tells you if you are overspending or underspending in specific areas. But, another huge benefit is that it boosts peoples’ savings! According to stats from the 1970s, people saved around 10% of their net income (net income is the amount of money you have left after you pay taxes on it; net income is what gets deposited in your bank account). Today that number is much, much lower. According to the Federal Bureau of Economic Analysis, from January-June 2017, Americans contributed (on average) less than 4% of their income to savings!! Now, I know that there are a lot of people, myself included, that save much more than 4%, but there are many people who are saving nothing, sadly.

According to another poll (which was from a financial website, so I think there’s likely a bias towards saving due to the fact that people interested in finances are more likely to be savers already) 18% of Americans save nothing, 28% save < 5%, 24% save between 6-10%, 10% save 11-15%, and 14% are saving over 15% of their gross income (there’s a few percentages points of “other” to equal 100%). Even from these numbers, only 48% of Americans are saving over 6% of their income! That’s not enough! Only 24% are meeting the recommended savings percentage of 10% or more of your income!

Budgeting tells you how much to pay yourself first, so you have a future whereas if you wait until the end of the month and try to save you’ll likely be disappointed with what is left! As we mentioned earlier, when you tell your money what to do, it listens. And if you tell your money to go to a savings or investment account it will do it – but, ONLY IF YOU TELL IT TO! What your money does hinges on what you tell it to do! Whether it’s the simple “pay yourself first” mindset that prioritizes saving for your future or a known, upcoming purchase before spending OR that people who budget find extra money (money they could have spent but didn’t) and invest it for their future. We’ll talk about how to find out how much money you can afford to pay yourself first with in the next few posts.


The biggest benefit of budgeting is the investment you make in your future. No one loves you like you do, or cares about your future like you do. So, save money for yourself and later when your working years are gone, you won’t be dependent on anyone else to make ends meet. Budgets give you control over how much you save, which directly affects how much you’ll have in the future. If you want to travel a bunch in retirement, save more now. If you want to travel now and stay at home in retirement, have a bigger travel budget now and smaller savings for retirement, but plan accordingly. Budgets have plenty of room for individual goals, but you have to start now! The later in life you start budgeting and saving, the harder it will be to get yourself in a good financial position. Having said that, it’s never too late to start! So, even if you feel like you’re behind, just do it! That’s ok; remember, things left to themselves seldom improve. If your financial situation isn’t great now and you haven’t really worked on it then it’s highly unlikely to randomly improve unless you purposefully make it improve.

Finally, developing a good spending plan is a lot like learning any other skill. At first it will feel awkward and uncomfortable, and you’ll overspend and mess up, but over time it will become a smooth process.

If you’re married, or going to be soon, begin discussing your financial situation with your spouse or significant other, as appropriate. This is a process that may be very difficult, because financial tensions are the #1 source of arguments in marriages and #2 in causes of divorce, behind infidelity. Taking the bold step to open the financial conversation can go a long way towards helping heal prior wounds, arguments, mistakes, etc. that you, as a couple, have already been through. Promise each other that you’ll both be honest, open, and patient with one another – and keep your word! This is a process. The good news is, once you start and consistently budget it gets easier in 3-4 months. You’ll see even more clearly the benefits of knowing your spending and saving habits and will start to gain control over how to tweak them as you desire.

The next post will be on what percentages of your money should go to which categories. So, work on the self-applications below and get an idea of where your money has been going. Then, we’ll progress to looking at some recommended category percentages to compare against your spending percentages. Then you’ll have an idea of what your financial picture looks like – and how it could look!


Budgets help us know how much we spend so that we can adjust the amount we spend up or down in certain categories. When you’re new to budgeting there are some steps to begin now that you’ll continue to develop and perfect over the next 4-6 months.

  • Do you track your spending, if at all? Have you tried to budget in the past and failed to implement it or stick to it for longer than a month or two? What happened then that kept you from sticking to it? Did you feel like it restricted you OR freed up your money? Why?


  • Review your past 3-6 months of credit card and bank statements and ATM withdrawals. Divide what you spent into the following categories (excel spreadsheet attached below). I recommend starting out with excel and after a few months of doing this manually, so you develop a solid understanding of what your spending looks like, start using a program like https://www.mint.com/ or https://www.everydollar.com/, or most banks have online budget/spending software that you can use for free as well.
    1. These automated programs save a ton of time and make it easy, but I do believe it’s important to understand and feel the process of managing your money. However, if you just want to use one of them from the start, have at it! Just make sure you spend some extra time going through the categories and making sure your expenditures are in the right place, those programs aren’t perfect, and again, it’s hard to know what you spent in a few different categories after a trip to Walmart or Target!


  • Look over your categories and see if you can remember some of the specific expenditures. Ask yourself, “What did I really get out of spending money on _____________?” You will likely realize that you have spent money on things you cannot even remember. It was likely an instantaneous purchase based off an emotion at one time due to clever marketing that convinced you to spend your money because you “needed” it at the time. Start to recognize those instances when marketing hits you and you spend money. That’s the entire purpose of marketing, so watch out!


  • Finally, it doesn’t matter if you set up a budget on an actual piece of paper like a caveman, use excel, or an app, it just matters that you do it. Einstein once said, “continuing to do the same thing over and over and expecting different results in the definition of insanity.” Stop hoping your financial situation improves, make it improve! This is how you change what you’ve been doing to start doing what you truly want to do – pursue financial independence!

Budgeting takes time and effort, but this is where you begin to gain control over your finances. According to Dave Ramsey’s stats, after budgeting for 3 months 84% of couples begin to feel more in-control of their money. Remember, this is a process, a skill you must learn that, just like riding a bike, will become easier and eventually you won’t need the training wheels! Eventually what started out as so difficult will become second nature and it only takes a few minutes to update each month. So, put in the work today and the next few months until it becomes easy for you. That’s when you’ll truly be in control of your money – and yourself!

Remember to persevere, budgeting is the common starting and ending point for most people! Don’t let your financial independence die here!


PS – here’s the budgeting categories. You should be able to download this excel file. The right column has the formula for monthly averages, so if you track spending for any number of months other than 6 you’ll have to change the “6” to that number of months in the formula.

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