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Personal budgeting strategies to help reach your goals
Balance your income, savings and spending with these effective budgeting methods.
Whatever stage of life you’re in, managing expenses is key to your financial well-being. As your income and lifestyle changes over time, so does your spending. Monitoring your expenses regularly — and leveraging effective budgeting strategies — can help ensure your spending supports your financial goals.
An Ameriprise financial advisor can help you align your expenses, income and savings with your broader financial goals.
Here’s how to find the right type of budget to manage your expenses:
1. Identify your net income and understand your spending
Spending less than you earn is a foundational financial principle, so having a clear picture of your net income and spending habits is a good place to start.
Calculating your net income
Net income is the amount of money you take home each month after taxes, employer-sponsored retirement plan contributions and other deductions. Here’s how to find and calculate it:
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If you’re a W-2 employee, you can find this amount by looking at your salary on your paycheck.
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If your income varies monthly, use the lower range as the baseline for your calculations.
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If you’re self-employed or have a second job, subtract any out-of-pocket expenses that will affect your after-tax income, such as taxes or regular business expenditures.
Understanding your spending habits
Start by tracking your expenses for a month or two (or more) — consider a budget tracking app or log your purchases manually in a spreadsheet. If you use a debit or credit card for household spending, check your online account – some credit card issuers will categorize your expenses for you or let you download your transactions in a spreadsheet.
As you audit your costs, here are a few ways to think about your spending:
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Essential: Recurring expenses that support your basic needs.
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Savings: Money you set aside for your cash reserve, retirement and other goals.
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Lifestyle: Expenses that enhance your life (i.e., are dispensable to your day-to-day life) — “wants.”
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Fixed: Expenses that are approximately the same each month.
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Variable: Expenses that may change from month to month or are an annual expense such as insurance premiums.
Advice spotlight
Tracking your expenses in the years before retirement can help you determine how much income you need and want in retirement. This exercise will help you understand how you, in partnership with your financial advisor, can recreate your paycheck in retirement through fixed income sources and a distribution plan from your assets.
Learn more: Personal cash flow management strategies
2. Find a type of budget that works for you
Most types of budgets have similar objectives, but each approach has different tactics. The key is to find an approach you can stick with. Many of these budgeting methods can be implemented with the help of digital budgeting apps and tools.
Here are a few common strategies:
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Budget strategy |
How it works |
Who it’s for |
How it’s different than other budgeting methods |
|
50/30/20 method |
Each month, you allocate your after-tax income into three buckets:
|
Those who are looking for a simple way to balance spending and savings priorities. |
An expense management strategy that can be used on its own or as a starting point for other budgeting approaches. |
|
“Pay yourself first” strategy |
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Those looking to reach certain savings goals and reducing their spending on non-essential items. |
Emphasizes savings rather than expenses. |
|
Envelope system |
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Those prone to overspending or impulse purchasing. |
Draws attention to excessive spending on any one item or category. |
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Zero-based approach |
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Those looking to understand and control their spending habits. |
Offers a highly detailed look at where your money goes each month. |
Whichever type of budget plan you use, leave room for unexpected expenses. A buffer will help you deal with unforeseen expenses without disrupting your plans.
Learn more: Smart strategies for minimizing expenses
3. Make adjustments
Once you’ve chosen and implemented a strategy, make changes based on your spending habits and financial priorities.
If you’re looking to reduce expenses, start with those that aren’t necessary (e.g., lifestyle expenses). Spending on restaurants, subscription services and other discretionary goods can add up.
You could also seek savings in variable expenses, even if they fall under necessary spending. For example, groceries are a necessary variable expense, but there are ways to minimize your spending — whether that be through buying in bulk, changing grocers or joining a rewards program that offers savings.
Learn more: How to save and pay for a big purchase
4. Take advantage of digital tools
Digital tools can make it easier to manage your expenses by tracking spending, paying bills and automating savings:
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Digital dashboards, budgeting apps and automated tools can help simplify the process of tracking your expenses.
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Total View, an account aggregation tool located in the secure site on ameriprise.com, can help you gain a more complete understanding of your overall financial picture. Connect accounts from other financial institutions, add physical assets such as homes or jewelry and view them all in one secure place.
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Online bill pay can help you manage essential recurring expenses.
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Automatic bank transfers allow you to move money from one bank account to another at regular intervals to help meet your savings goals.
Learn more: How to keep your financial records organized
5. Regularly review your plan
Your income and spending are likely to change over time, as will your priorities. Make sure those changes are reflected in your budget by reviewing your plan regularly and adjusting accordingly.
Also revisit what you save in connection with your expense review. Where do you save money when you have more after-tax income than you need to cover expenses? Can you save more toward your goals?
We’re here to help keep you on track
Having an accurate view of your household spending is critical to your overall financial strategy. Your financial advisor can help track your progress and align your spending and savings with your financial goals.
When you’re ready to reach out to an Ameriprise financial advisor for a complimentary initial consultation, consider bringing these questions to your meeting.
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At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's.
If you know someone who could benefit from a conversation, please refer me.
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