Perspectives & Insights Article

This article was originally published in June 2018. It has been updated to reflect current information.

Have you taken the time to create a personal budget? And if you do have one, do you stick to it? If you don’t, you are not alone: A NerdWallet survey¹ indicates that although around three-quarters (74 percent) of Americans set a monthly budget, a similar amount (84 percent) say they sometimes exceed it.

Whether you are just starting out or trying to get back on track, it is important to ask yourself the right budgeting questions. The answers can provide a realistic understanding of your financial situation and illustrate changes you can make to meet your goals. They may even surprise you.

1. What is my income?

Start with your monthly take-home paycheck. If you earn variable wages or are an entrepreneur/freelance worker, you can use either an average monthly income for a recent period (at least six months) or the lowest income you earned for one month. Do not include bonuses or non-regular income. If uncertain, use a more conservative figure.

2. What are my debts?

Add up your monthly debts, including any mortgages, car loans, credit card payments, student debt, etc. Write down the total you owe for each obligation, plus a minimum monthly payment. After accounting for other items, you can adjust the payment amounts to reduce debt more quickly.

3. What are my expenses?

Your expenses include monthly costs plus unexpected items:

• Recurring expenses. These expenses are the same each month, for items such as insurance premiums, gym memberships, parking, phone and internet, daycare, subscriptions, and rent.
• Variable/discretionary expenses. Include your groceries, entertainment, dining out, travel, shopping, gifts, charitable giving, etc. Recent past credit card bills and bank statements can provide guidance.
• Surprises. It is important to factor in the one-off expenses that hit each of us occasionally. Include car repairs or maintenance. Are you planning a wedding, overseas travel, or home renovations? Anyone can be surprised, but it’s important to prepare.

Total these groups to find your average monthly expenses.

4. Does it add up and, if needed, what can I change?

Subtract your debts and expenses from your income. Ideally, you will be left with a positive number. If not, you need to adjust. Focus on making this number positive.

Scan your expenses for ways to reduce costs so that you can save and ultimately invest more. This gets you closer to your goals.

Remember: Even with fixed expenses, you can still find ways to cut spending, so long as the reductions are feasible. Have you compared prices through different service providers such as cell phone or insurance carriers? Can you eat out less often, cancel subscriptions, or make other lifestyle changes? If you are likely to make impulse purchases, help yourself, and avoid keeping cash or your favorite store’s credit card in your wallet.

On the income side, can you ask for a raise, earn more with a side gig, or even consider searching for a higher paying job?

5. What are my priorities?

Prioritize repayment of debt and create a “rainy day” fund for emergencies. Are you saving and investing for retirement? By listing priorities and defining your overall goals, you can see where you have budgetary wiggle room and can create a more definite strategy for reaching those goals. You can also use this opportunity to allocate more than minimum repayments for debts.

6. How can I make this sustainable?

Consider making your saving and investing automatic by having dollars drawn directly from your paycheck. Many employers offer automatic investing through a 401(k) or other retirement plan.

You can also use a savings or banking app and sign up for alerts about account changes. If you receive a message indicating a low balance, it may spur you to cut back on spending in response. Similarly, having account access on your mobile device allows you to check your account balance before making a major purchase—and may even cause you to reconsider.

As you track progress, make sure your budgeting methods are sustainable. Whether using a spreadsheet, pencil, or online tool, you will want to settle on methodology that is comfortable. The only “right” system is one that suits your needs and works for you. And when is the right time to start? Now—it is never too early to set your financial path forward to a secure future.

¹ https://www.nerdwallet.com/article/finance/data-2023-budgeting-report

This material is being provided for educational and informational purposes only. D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2025. All rights reserved. Member FINRA and SIPC.