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Budgeting - #CFG-U

Updated: Mar 15, 2022

Budgeting is a polarizing topic in many American households. Some find budgeting to be a hassle, restrictive, and stressful. Others find NOT budgeting to be a hassle, restrictive, and stressful. One thing we can all agree on, it takes some time and effort to set and maintain a budget. Perhaps this is why a recent Gallup poll found only 32% of Americans actually maintain a budget and a measly 30% of Americans have a long-term financial plan. Another interesting point from this survey is that the majority of Americans with a budget fall into the middle class or higher with an annual income of $75,000 or more.*

As a CFP® professional, I find these statistics alarming. But it also helps to shed some light on why nearly 60% of Americans have less than $1000 in savings for an emergency, and retirement savings rates are dismal.**

Here is a breakdown of Americans by age group with less than $100,000 of retirement savings:***

  • 40s – 59%

  • 50s – 53%

  • 60s – 38%

  • 70s – 33%

As a basic rule of thumb, in order to maintain a similar lifestyle in retirement, an individual should aim to have the following amounts in their retirement savings by these ages:

  • 30 – 1x salary

  • 40 – 2x salary

  • 50 – 4x salary

  • 60 – 6x salary

Pensions are few and far between these days and the long-term funding for Social Security is always a question mark for Americans. Therefore, retirement savings needs to become a priority for us culturally.

Now you may be asking yourself, this post was supposed to be about budgeting…how did we get on the topic of retirement?

I’m so glad you asked.

In order to reach long-term goals like retirement, short-term actionable steps need to be set. Here are three steps to begin to improve your financial situation beginning with, you guessed it, a budget.

1 - Budget

Budgeting does not need to be cumbersome, time intensive, or stressful. Instead, if done properly, it can provide clarity and freedom in an area of your life that is rarely associated with those two words, spending.

To begin, break down your spending into four categories:

  • Live

  • Give

  • Owe

  • Grow

Now I would like to point out, the order here is of the utmost importance and must align with your personal goals and values.

*Pro Tip* Define your goals. Write them down. Look at them regularly. Share them with your spouse or friends. Why? Because goals that go unspoken and unwritten normally go unaccomplished.

I often encourage clients to follow this order and begin thinking in terms of percentages instead of dollars:

  1. Owe

  2. Grow

  3. Give

  4. Live


You must pay the OWE category, as this includes all taxes and liabilities. As Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.” He was a wise man, so we will always begin with taxes.

Take your earned income and slice taxes right off the top. Taxes are always calculated as a percentage based on your income. You can calculate it yourself or just use the after-tax dollar amount on your paycheck. Once you know that dollar amount, known as your “take-home” dollars, you can then move to liabilities. Immediately subtract out your liabilities including your mortgage, car payments, credit card payments, student loans, etc. Of course, there are always decisions to be made as to how aggressive you would like to be with paying down debts, but that is a story for another post!

*Pro Tip* If you own a home, a good target to shoot for is less than 35% of your total (gross) income going towards debt. If you do not own a home, make a goal to keep debt under 10% of your total income.

Now you have your “planning” dollars, which is often times around 50% of your total income after paying what you OWE. You then have to decide: Do you GROW first or do you GIVE first? Either way can be the right choice you just have to choose what fits with your goals and values. When thinking about the GROW category, that can mean (in order of importance):

  1. Contributing to an emergency fund

  2. Saving for retirement

  3. Investing for college

  4. Other investment strategies

*Pro Tip* For the GROW dollars, if you are under 30 years old, a great target savings rate is 15% of your gross income INCLUDING any employer contributions to retirement plans. If you can save more, that’s a bonus! For people over 30, savings rate can vary depending on several factors but 20% is a great target.

GIVE can mean charitable giving, tithing, or giving to family. The percentages for GIVE dollars varies by goals, values, AND age. Many clients of faith strive to give a full 10% of their income and that is always based on GROSS income. Other clients want to give a different amount, but when thinking of stewardship and financially responsible decisions, it is important to determine a percentage of your income that you would like to commit to giving each month. It is also good for the heart to have this in your monthly budget. A recent study from Harvard Business School revealed that regardless of income level, people who spent money on others reported greater happiness, while those that spent money on themselves did not. Making this a priority in your monthly budget is good for the causes you support, as well as your emotional health!

*Pro Tip* If you like to give periodically when causes catch your eye instead of a set amount each month, consider setting aside your budgeted GIVE percentage each month in a separate account so you know exactly how much you have available to give when the opportunity arises!

It may surprise you to find the LIVE dollars at the bottom of the spending totem pole. This is in polar opposition to how most Americans function. However, from a financial planner’s perspective, you must take care of the first three categories before you can worry about living expenses. This portion of your budget will consist of two basic categories, NEEDS and WANTS. NEEDS include food, transportation, utilities, insurance, etc. WANTS would include restaurants, entertainment, travel, shopping, etc. Of course, you must pay for your NEEDS before you should purchase any WANTS. If you have anything left over after your NEEDS are met, you can freely, without guilt or stress, purchase anything on your WANTS list.

That is the freedom that comes with a budget.

If you get really good at it, you can even add an “ALLOWANCE” as one of your NEEDS to allow for built in, fixed, monthly discretionary spending. Talk about freedom!

*Pro Tip* Request an annual statement from your bank to see exactly how much money left your checking account last year. Divide by 12. This will give you a good idea of your monthly total expenses. Or you can download an expense tracker app to see exactly where every dollar goes. The more detailed you are when you start, the easier it will be to maintain!

2 - Automate It!

Now you have a basic budget and you know what percent of your income is going to OWE, GROW, and GIVE. The next step is to make sure those budgeted amounts automatically get where they need to go! For taxes, most employees have taxes automatically withheld, so that is done. Next, make sure your debt payments are on auto pay through your bank or credit union. There, OWE is automated.

Next, GROW. First step here is to make sure any employer sponsored retirement plans (401k, 403b, etc.) is being deducted from your paycheck AT LEAST UP TO THE EMPLOYER MATCH. Once you have that percentage automatically deducted to your retirement savings, you can then set up automatic contributions to your emergency fund, IRA, Roth IRA, or whatever account you determine fits your goals. Boom, GROW is automated.

*Pro Tip* Make sure you are directing a portion of your GROW dollars towards your emergency fund before you begin funding other goals. If you do not have emergency savings, set a goal at $1,000 and get there as fast as you can. If you already have $1,000 saved, set a goal of three months of living expenses in cash. This is in case of emergency – like job loss, disability, or major expenses.

Next up, GIVE. If you are a monthly giver to your causes, you can set up automatic withdrawals for a particular dollar amount each month. Based on your stated percentage you would like to give, you can simply calculate that into dollars and set that up through the charity or your bank. If you are a sporadic giver, you can have your predetermined dollar amount automatically transferred to a different savings account at your bank each month to keep earmarked for future giving opportunities.

*Pro Tip* If you are feeling really generous, there are accounts designed for charitable giving that allow you to invest your charitable dollars with the goal of growing your ability to give!

Finally, you can automate your LIVE dollars too. Any of those fixed expenses like utilities or insurance premiums should be on autopay. If you have a budgeted WANTS amount or an allowance, you can have that automatically moved to your WANTS account at your bank to keep those dollars separate from the rest.

3 - Schedule Time

Now that you have a budget set and automated, you don’t even have to think about it, and life just got a little less stressful. You have your taxes and debts paid, you are saving for the future, you are supporting your favorite causes, and you are living within your means. All that is left to do is to make sure you stay on track! Life happens and things change. Make sure to schedule time once per month to review recent credit card statements, scan for fraudulent charges, look for unused subscriptions, and make adjustments as changes arise with your income, goals, or values.

*Pro Tip* Put it on the calendar! Use your calendar on your phone to set a reminder at the same time every month. Treat this as an appointment that you cannot possibly miss, show up for 30 minutes, and keep yourself on track!

Budgeting can be scary. But, it is the foundation of a financial plan and is the driver of your progress towards long-term goals. You are now fully equipped to get yourself on the right track towards what you value most in life. Write out your goals. Define your values. Make sure you are spending your money in a way that aligns with those goals and values. Your small actions today will determine your long-term financial success.





This information has been provided for general educational purposes only; it has been obtained for sources deemed to be reliable but we cannot guarantee that it is accurate or complete. The information provided is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. All investing involves some degree of risk, investors may incur a profit or loss regardless of the strategy or strategies employed. Every investor’s situation is unique, you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with a financial professional about your individual situation. Raymond James Financial Services, Inc. and its advisors do not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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