Here’s how to make a spending plan that covers the things you need—and helps you save for the things you want.
He suggests reviewing 12 months of statements from credit cards and bank accounts to see what you actually spent in a year and on what. Categorize what you spent into fixed expenses (rent, transportation or commute, groceries, utilities, child care, etc.) and discretionary expenses (takeout, entertainment, clothes, gym memberships, vacations, birthday parties, etc.).
Then use the total amount you spent in the past year as a baseline to determine an average monthly expenditure. “It’s as simple as knowing that we spend around $8,500 a month all-in,” D’Ordine says. This will help you figure out how much of your total net monthly income you have left over to save for various goals.
Figure out your goals.
First and foremost, D’Ordine suggests bulking up your emergency fund if you don’t have one. He advises keeping approximately three months of expenses in your savings account in case something happens, like you lose your job or your partner needs to take an extended leave.
Then sit down together and write down your main goals,“and be very realistic,” Danielski says. Do some research on how much these goals will cost and how long it will take you to reach them—a down payment on a house, retirement, college for your kids, paying off debt. “Once you identify how much you need to start saving, you can figure out your budget,” Danielski adds.
Periodically check in on your budget to make sure you’re meeting your goals.
“I think that a monthly check-in provides accountability,” D’Ordine says. “So that when unexpected opportunities arise to spend money that maybe aren’t in the budget, something will go off in the individual’s brain that will say ‘well, wait a second, this is going to come back to haunt me when we check in at the end of the month.’”
“The more you’re aware of your spending and savings habits, the better you’ll be able to meet your budget goals,” adds Danielski, who suggests couples plan “money dates” out of the house to make these check-ins something to look forward to. “Weekly or bi-weekly meetings are helpful if you’re trying to cut back on spending habits,” she says. “Monthly and quarterly meetings may be a better fit if you’re checking in on the overall health of your budget and goals.”
These periodic check-ins are also a good time to take a peek at your emergency fund. “If it’s being depleted, that means you’re spending more than your average monthly amount or you’re spending more than is coming in,” D’Ordine says. You’ll want to review your discretionary expenses to see what you can trim. But, D’Ordine adds, “if that emergency buffer is creeping up, then that extra money is what you can throw into the college fund or save for a down payment.”
While all of this might seem like a massive undertaking, setting up a budget and attacking problem areas now will set you up for success down the road. “Once you’re cash-flow positive and you have more savings and you’re spending less than you earn, you can pay off debt, you can save for a home, you can save for other goals, you can invest, you can save for retirement,” Euretig says. “So it’s really crucial and it’s worth the time to get right because it sets you up for literally anything else you want to do financially.”