Kyle M. Harpin, CFA, CFP®
Analyst, Client Needs Research

When you hear the word “budget,” what comes to mind?

Many people think of limits and constraints. But a budget actually puts you in control. It can help align your spending with your values and help you achieve your goals.

By using a budget, you can get a clearer picture of your spending and how much progress you’re making toward your goals. In fact, the financial awareness a budget can help provide has been associated with better financial decisions and satisfaction.1

Are you ready to give budgeting a try? Or maybe you have an unused budget gathering dust in a drawer. If so, these four steps can help make budgeting work for you.

1. Gather your tools.
Worksheet, spreadsheet or budgeting app? You could use multiple tools, depending on the level of detail you want. For example, you can record your budget on a spreadsheet and track it on a budgeting app. The trick is to use the tools you like best.

2. Pick your method.
With so many methods and levels of detail to choose from, budgeting can seem intimidating. But keep this in mind: The most thorough budget in the world works only if it works for you. Edward Jones recommends more detail if possible, but if you’re more likely to stick with a less detailed budget, try that instead.

  • Least detail: Track your after-tax income and expenses. At this level, we recommend using just two categories: income and expenses. Record your after-tax income, then do the same for your expenses. Do this for a few months to incorporate expenses that don’t occur on a regular basis, such as your car insurance and taxes. Notably, this is the minimum we recommend for a budget. While there may be benefits to having an overarching view of income and expenses, it can be hard to make adjustments because you don’t know where your money is going. More detailed methods can provide more insight to your spending, which can help you make adjustments and balance your goals.
  • More detail: Track your expenses by large spending categories. Break down your expenses by large categories such as necessary and discretionary spending. Necessary expenses are those you need to pay, such as a mortgage, car payment or groceries. Discretionary expenses are those you want to make, such as a night out at a movie or a restaurant. What’s necessary often varies by person, so be sure to categorize your expenses your way.
  • Most detail: Track specific categories. This is where you categorize your expenses by type. You might decide to budget for each portion of your spending, such as housing, food, entertainment, etc. You can even break your food expenses into groceries, restaurants, fast food and so on. Repeat this process for each section of your budget until you have accounted for all your past and anticipated expenses.

3. Make adjustments.
Even small adjustments can help you stick with your budget – and potentially grow your wealth.

Align your spending to your values.
First, you’ll want to make sure you’re spending money in a way that aligns with your values. If you’re paying for a subscription you’re not using or buying things you don’t truly value, ask yourself if you should continue making that purchase.

Reduce expenses where you can.
If you can’t eliminate an expense, reducing its cost is a nice middle ground. You could choose generic brands, compare costs on homeowners/renters or car insurance (without sacrificing coverage) or do some research to see what it might cost to refinance your mortgage.

You can also limit overlap in your budget. For instance, if you have multiple music or video streaming subscriptions, consider cutting one or two of them.

Alternatively, explore substituting a more expensive option with a less expensive one. When you eat out, consider choosing less expensive items or a restaurant with more casual dining. Or try something totally different, such as going on a picnic.

4. Review, review, review.
Kicking off your budget is just the beginning. Check back from time to time to ensure you’re staying within your planned expenses or make adjustments as necessary.

If you go over your budget, don’t beat yourself up. Review each category to determine whether you need to adjust your budget or your spending. Your financial advisor, who can see your entire financial picture, can be a great resource here.

To us, budgeting is the foundation on which a financial strategy is built. Set some time aside soon to build or reboot your budget and keep your money working hard for you.

1 “Know thyself financially: How financial self-awareness can benefit consumers and financial advisors,” Nivriti Chowdhry and Utpal M. Dholakia, 2019.