How to Make an Effective Budget

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Does the mere mention of the word make you…wince? Did you just lose your appetite?

We get where some of you are coming from: Creating a budget can be daunting – about as fun as a trip to the dentist with a mouthful of cavities. And it requires self-control and time – even when time is used to budget for things you actually want to do.

That’s why Clarity Money strives to make budgeting more approachable and manageable and…even palatable for you. 

And it’s why Clarity Money created a personalized budgeting feature, the Weekly Budget, that aims to be different than anything else in the market. It’s meant to leave you with fewer headaches and more free time for everything else you’ve got going on in life. 

Clarity Money’s approach to budgeting

Here’s a straightforward approach to budgeting: first, establish your overall budget, then focus on a few categories that you want to hone in on your spending. Simple as that. Clarity Money believes It’s all about accounting for specific things in your budget that matter most to you. And it’s best to focus on the monthly expense categories where you can assert control and flexibility.  

Here's how to get the most out of your budget.

Focus on your discretionary income – and get real about that number

The Clarity Money weekly budgeting feature separates your recurring expenses (fixed expenses) so you can focus on the discretionary amount (variable expenses) you have at your disposal. 

By discretionary income, we mean everything that’s left after your recurring expenses are paid. Discretionary income is your magic number – what you have available to save or spend however you’d like. If you go by the 50/30/20 Rule (50 percent essentials, 30 percent wants, 20 percent savings) then your discretionary income should account for half of your after-tax income (your wants and your savings). 

You’ll want to start with a realistic number; start too low and it might take a Herculean effort to keep within budget. 

So think hard about that number. Does your past spending behavior indicate that this number is realistic? Can you project into the not-too-distant future and envision whether this is the right amount? 

Once you settle on a number, commit to it. You can always adjust it down the road.

Pick a few categories to focus on

There’s a range of categories consumers spend on: food, travel, transportation, and entertainment are among them. But try to squeeze every last category into your budget and you could end up spreading yourself thin. Instead, try to focus on a few and cut the rest to see what kind of impact that makes on your overall budget.

Of course, there’s a balance to all of this. Say you expect to dine out more often this month with friends who are visiting from out of town, are trying to save for a vacation nine months from now, and want to schedule a few date nights with your significant other. You might need to prioritize or make some difficult decisions.

If it’s a category you derive pleasure from, the last thing you want to feel is deprived by not having budgeted enough. Think you’re overspending in another category? Maybe a goal is to stick to a specific dollar amount.

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Monitor your budget regularly

Say you’re most comfortable setting a manual budget in Excel. And you check on it a week or so later, only to see you’ve blown past your budget in a certain category. That’s never fun. And it’s probably the fastest way to get annoyed and give up on your budget altogether. 

We’re not saying you have to scrap your manual budgeting method, but if you also use the Clarity Money Weekly Budget, you can subscribe to alerts to check in on your budget along the way.

Adjust if you need to

It's okay if you set a little too aggressive of a budget and need to adjust the numbers. No shame in that. Whoever said budgeting is static? 

But try to resist wholesale changes to your budget after just one or two weeks; consider monitoring your budget for a month or two. That way you can spot trends. Then figure out what adjustments need to be made.

If you find yourself going over in a specific category, see if there are a few dollars you could borrow from another category. 

Again – you should never feel like a failure if you’ve gone over your budget. Budgets are meant to be adjusted.  After all, according to a survey by Marcus by Goldman Sachs, more than three-fourths of Americans (78 percent) exceed their budgets at least a few times a year. 

Clarity Money is on a mission to make that percentage drop.

Don't forget to pay yourself

If you’re able to, make sure you're also rolling some money into savings and have a savings goal. If you’re going by the 50/30/20 Rule, then 20 percent should go into that pot.

Saving can be the gateway to a lot of things: investing, emergency funds, and just a nice ol’ nest egg. 

Not overspending, earning interest on savings, finding a budget that works for you – we’d like to think those are solid pillars of long term financial health. 

If you need help getting started, we have an online savings account with a competitive rate, so you can start managing your savings and budget in the same place. 

Budget. Save. Rinse. Repeat. You’ve got this. 

Marcus by Goldman Sachs® and Clarity Money® are both brands of Goldman Sachs Bank USA.

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 The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.