Your Money Management and Budget Planning

Learning how to budget and save money can make your life easier. 

Before we get started, an important thing to know about budgets is that they will change, because your life is going to change: You may get married, have a baby (maybe twins!), start your own business, or move halfway across the country. All of these life changes mean your budget will change too; but, the steps you take to get a handle on your finances and create a budget will remain the same. 

Budgeting and managing your money in three steps

You can break down money management into three steps: tracking what you spend, creating goals and putting your plan to work.

Step 1: Track what you spend

When you track your take-home pay, you’ll have a better understanding of what you have and where your money goes. Once that is in hand, you can see how and if your spending patterns are in line with your idea of financial well-being.

To get started:

  • List all of your regular sources of income – you want your post-tax total (what you take home) and to track income that’s dependable since that’s essentially your financial bedrock.
  • Take inventory of all accounts, such as your credit card and bank accounts. Consider using a budgeting program or app, like Clarity Money, which is part of Goldman Sachs, so you can see everything all together.
  • List expenses you have every month, like mortgage payments or rent, loan payments, insurance, food; and what you tend to pay every month on variable, necessary expenses – like gas.
  • List expenses that may be more flexible, like eating out; and optional – like a vacation you may be saving up for.

Once you have these numbers lined up, you’re ready for these next two questions:

  • Are you spending more than you make? 
  • Do you have some money set aside for savings?

If your spending or saving levels aren’t where you want them to be, the list you just put together may help you re-prioritize your expenses, to see where you may be able to cut back.

If you’re looking for a financial compass of sorts, the 50/30/20 rule could provide a strategy for allocating a steady income. 

Step 2: Consider creating goals

Now that you know where your money is going and how it measures against the money you’re bringing in, you can create goals, and then create a plan to reach them. (If you feel like your financial reckoning deserves some sort of punishment, do a pushup or lap the block, but, really, it’s not necessary.)

To reach your goals, you’re going to want to dive into another set of numbers: how much money you’ll need to reach each of them, and what you’ll need to save every year, every month, and every week to achieve them.

Yeah, it requires a few steps, but if you’re serious about budgeting it’s worth it because breaking down goals into parts is the concept behind what are called “SMART” goals – which stands for goals that are Specific, Measurable, Attainable, Realistic and Time-bound.

In other words: A goal that’s smart is a goal with a plan to reach it. You don’t have to do the letters in order. Just account for each of them.

What a SMART goal looks like

Let’s say for example, that your goal is to save $2,000 in an emergency fund (Specific).

In one year (Time-bound).

Breaking it down monthly or weekly, you would need to save on average about $167 per month or about $38 every week (Measurable, Attainable, and, if we’re on a roll, Realistic).

Breaking this one goal into parts makes it easier to act on than pursuing a vague goal like “save some money.”

So that’s part one of saving.

Part two includes knowing that it’s possible for the money you’re setting aside to earn money while it waits to be spent—let it sit in an account that earns interest.

Some options you may want to consider: savings accounts that offer high Annual Percentage Yields or “APYs” – the total interest you will earn on a savings account or certificate of deposit in one year, including all compounded interest.

What if debt is a major part of your spending?

Getting a handle on debt is important for a lot of reasons, including getting out of it and shoring up your credit score for later. 

Weeding out unessential (or temporarily non-essential) services you may be paying for every month is one part of getting debt in check. Big-picture “How do I tackle my debt?” advice goes beyond creating a budget, and we’ve got some great pieces like this one about making a debt payment plan and this one about why debt’s so common, and even this one about the link between happiness and credit card debt. Want more? We’ve got an entire section about Managing Debt.

Step 3: Put your plan to work, review and revise

Now that you’ve got a budget, goals and plans for how to meet your goals, you should feel ready to take action. Keep in mind that it’s OK to make adjustments, and that sometimes you should.

Plus, this will help you get ready for the next phase: making regular checks. Keep tracking your spending, keep seeing if you’re staying within your budget and identify if anything is throwing you off track.

Then, do it again.

If you get a raise – first, nice job! Next, make a plan for it by first asking: is the increase needed to pay down debt? Can you repurpose it for a few months to build an emergency fund? Can you put it towards a vacation savings account?

Sound like a familiar pattern? Good; you’re getting the hang of it.

Ask for support and reward yourself

Having someone remind you that you have financial goals may help you stick with them – consider finding an accountability partner, like a trusted friend or family member, to help keep you on track. 

Also, be sure to give yourself credit while you’re making progress. This is really important – for example, 12 months to meet our SMART goal of saving $2,000 for an emergency fund can feel like a long time. So consider giving yourself a small (budget-friendly) reward for achieving each SMART goal.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.