Knowing how to budget your money simply makes life easier. By having a solid handle on how much money you’re making and how much you’re spending, you can live more comfortably today, plan effectively for tomorrow, and reduce overall financial stress. 

A great way to start budgeting is to list all income sources and monthly expenses — fixed and discretionary — and direct any surplus to saving and investing for long-term personal goals. During this process, you can anticipate how your financial needs will change as you near and enter retirement. 

Why you may want to consider setting a budget

A budget helps you stay on track with current expenses and plan for future ones. But before reviewing why you may want to consider setting a budget, you must recognize that budgets are only as good as the data you provide. Without honest reporting, even the best budgeting apps won’t do much good if you underestimate your monthly expenses.

Work toward long-term goals

A budget creates a map of your financial present with an eye on the future. By seeing what’s coming in and going out, you lay the groundwork to take steps to prepare for retirement and other significant future money events, such as buying a home or paying for college.

Makes saving for retirement easier

Regularly assessing your current cash flow and expenses helps you adjust saving strategies as needed to successfully prepare for retirement. During a monthly budgeting session, you might notice that you're not on track to meet your long-term financial goals --- you can then pivot, perhaps saving more monthly or purchasing an annuity that'll provide income later in life. 

Keeps you from overspending

Auditing bank statements regularly helps you spot overspending on both debit and credit card accounts. According to the Federal Reserve, household credit card debt hit an all-time high of $1.21 trillion at the end of 2024 amid rising delinquency rates. Reviewing bank account and credit card statements helps you isolate trouble areas and cut back. 

Helps you prepare for emergencies

An emergency fund should be a key part of your budget breakdown. Experts recommend keeping three to six months’ expenses in a separate savings account to deal with the unexpected, such as a layoff. If you’re working with a $500 monthly surplus, you can gradually build a sufficient emergency fund alongside your investing activities.

How to make a budget in 4 steps

Follow these four steps to create a budget that’ll help you make informed spending, saving, and investing decisions. 

1. Figure out your after-tax income

If you make $100,000 a year, you probably don’t take home $100,000 a year (or the monthly equivalent of $8,333.) 

Determine your take-home pay, or after-tax income, by looking at your paycheck and using the amount of money you receive after federal and state deductions. Do the same with anything that reduces self-employment income, such as taxes and business expenses. Factor back in money taken out of your check for 401(k) contributions or insurance premiums so you’ll have an accurate picture of your savings and expenses. 

2. Track your spending and recognize your fundamental expenses 

You will likely have to make your rent or mortgage payment, and there are often other non-negotiable monthly expenses like car payment, utilities, and phone bills. These are your fixed expenses. 

Once you’ve highlighted your fixed expenses, place discretionary spending (or wants) in two categories: 

• The things you don’t need but want to have, like coffee and Netflix. When money is tight, you might de-prioritize these things. 

• The things you already have or want to have, but can get cheaper versions of, or use less. A Honda instead of a Lexus, or running the AC during the day instead of 24/7 amounts to discretionary spending. Pulling back in areas that come to light during this step of the budgeting process can increase cash flow. 

3. Choose a budgeting system

With your fixed and discretionary spending in check, pick a framework that aligns with your savings goals. 

The 50/30/20 budget

This popular budgeting method allocates your after-tax income into three categories:

• Needs, such as housing, utilities, and groceries (50% of your budget)
• Wants, such as dining out and entertainment (30%)
• Savings, investing, and debt payments (20%) 

By keeping debt in the savings and investing category, you can quickly increase your savings and investing as you pay down debt. The 50/30/20 also provides flexibility, such as decreasing the percentage allocated to wants and diverting it to the savings and debt area. 

The 70/20/10 budget

A variation of the 50/30/20 system, the 70/20/10 budget groups all expenses — fixed and discretionary — together to account for the 70% category. Saving and investing comprise 20%, and debt repayment is 10% of your budget. Keeping debt separate from saving and investing provides better visibility, especially if you foresee having difficulty paying it off monthly. 

The envelope system, or 'cash stuffing'

If you need to see your money, cash stuffing might work. With the envelope system of budgeting, you “stuff” cash into envelopes labeled with your spending areas. When you exhaust the money in each envelope, you’re done spending for the month in that category. 

Pay yourself first

This approach works backward and can be effective for people who make enough money to save and invest but still find themselves living paycheck to paycheck. With a pay-yourself-first budget strategy, you set aside a percentage to save and invest right when you receive income — before you pay your bills. 

The zero-based budget

The zero-based budget is your best bet if you don’t want even one dollar to go unaccounted for. However, it requires a meticulous and methodical approach. With zero-based budgeting, you attach every dollar you earn to specific areas, such as housing, utilities, and investing. When you’re finished, your income minus expenses should equal zero. Even a tiny bit of spontaneous spending throws the zero-based budget off course. 

4. Track your progress with a budget app or template

Even if you’re good at creating and updating spreadsheets, you can still benefit from a good budgeting app or an outsourced monthly budget template. They decrease your room for error and bring objectivity into creating categories and accounting for your spending. 

Budgeting apps

To help with data organization and tracking, you might want to consider using a budgeting app — here are some popular budgeting apps:

1. YNAB^®

You Need A Budget (“YNAB”) uses zero-based budgeting, giving “every dollar a job.” This platform provides a free 34-day trial period, so users have a few days to assess how the app performed during the previous month. After the trial, YNAB charges $11.99 a month or an average of $9.08 a month if you pay annually. 

2. PocketGuard^®

PocketGuard brings together personal finance elements, including net worth, cash flow, and debt paydown schedules, into visuals like charts to showcase where your money is going and how much you’ll have left after paying fixed expenses. It automatically links to your bank accounts to track spending and cancels recurring subscriptions. 

PocketGuard costs $12.99 monthly or works out to $6.25 monthly with a yearly subscription. 

3. Empower Personal Dashboard^TM

The Empower Personal Dashboard is a free tool that includes budgeting features. This platform differs from other popular budgeting apps in that it provides a more comprehensive view focusing on investment tracking and wealth management. It‘s great for individuals further along in their financial journey with an eye on retirement. 

4. Quicken^®

A household name, Quicken offers comprehensive budgeting tools and the ability to see all of your personal finance and investing in one place. Monthly plans range from $5.99 to $7.99, and frequent promotional offers make it relatively budget-friendly. 

5. Goodbudget^®

Goodbudget takes the envelope or cash-stuffing system virtual. It uses digital envelopes to allocate cash to all fixed and discretionary spending areas. Goodbudget’s free tier offers a limited number of envelopes and features, while the $10 per month (or $80 annually) provides unlimited envelopes and automatic syncing with U.S. bank accounts.

What’s a monthly budget template?

Monthly budgeting templates are spreadsheets that help you organize your income and expenses. You can find many templates online, including from popular platforms like Google and Microsoft. Using templates is a good method for ensuring you don’t miss important categories or line items. 

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This communication / article is for informational / educational purposes only.

It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice.

The Gainbridge^® digital platform provides informational and educational resources intended only for self-directed purposes.

Individual licensed agents associated with Gainbridge^® are available to provide customer assistance related to the application process and provide factual information on the annuity contracts, but in keeping with the self-directed nature of the Gainbridge^® Digital Platform, the Gainbridge^® agents will not provide insurance or investment advice.

^{SteadyPace™ and ParityFlex™ are issued by Gainbridge Life Insurance Company, Zionsville, Indiana. All guarantees based on the financial strength and claims paying ability of the issuing insurance company.}