As a financial advisor, I strategize every day on how my clients can meet their financial goals. One major aspect to making this work is – what are you spending?  At first, it surprised me to see how few people have a good grasp on what their day-to-day expenses look like. Over the years however I have come to find this is the norm.

There really is no big secret to becoming wealthy, it starts by saving your money. It doesn’t matter if you are making $2M a year or $20k a year – if you are spending all of your income, you will not become financially independent. Don’t rely on a big windfall like winning the lottery to fall into your lap. Whatever amount you are able to save, whenever you are able to save it, will add up over time.

First things first – track your spending. And be honest! This is probably the most important step in budgeting. Start by getting a true account of what you typically spend. At a minimum, it is best to track this for at least one month. Also, don’t forget to add in those once a year expenses (insurance costs, annual credit card fees, holiday spending, etc). Estimate this and divide by 12 to add to your monthly budget.

When I say be honest – I mean it. One-off items are more common than we acknowledge. For example, perhaps you had an extra $300 of expenses for a car repair in that first month you are tracking – don’t subtract that under the assumption that it will not happen on an ongoing because there will be others (doctor’s visits, home repairs, car repairs, etc.).

This can be an eye opening experience when we realize all of those small things add up. Those daily lattes can add up to over $1,000 per year. Those “small” amazon prime purchases we are all inclined to make since it’s all too convenient, may not be so small when you look at it over a month or even a year.

This can seem daunting to track your expenses but don’t let that deter you! There are a ton of great online tools that will help you categorize your expenses. Most banks and credit cards will even do this for you. If you can have all of your expenses going through one source while you are tracking them, that can really simplify the whole process (i.e. use the same bank account, same credit card, etc).

I am a big proponent of making budgeting a simple process, however for this first step I recommend you take some time to re-organize your expense categories to what makes sense for you (not just what your credit card company thinks). For example, there may be a generic travel category but this could include vacations, work travel, and commuting costs which all have very different purposes. While organizing your spending, break out your necessary costs (rent, groceries, loan payments, etc) versus your discretionary costs (entertainments, travel, clothes, etc).

Now, with an organized list of your spending habits – here is where we get to start planning! Let’s take a look at your total income and subtract your total spending. Do you have a surplus that you are savings each month? If so, great! But is this enough?

A rule of thumb when it comes to saving is the 50-30-20 rule. 50% of your income should be earmarked for your necessities (rent/mortgage, food, transportation, etc), 30% should be going to the discretionary costs, and 20% should be going to savings. I use this purely as a point of reference – there is no one-size fits all when it comes to savings goals.

Determining exactly what you are trying to save for, how long you have to save for it, and what it will cost tells you if you are saving enough. Are you saving for a home? For retirement? For college costs? All of the above? Or something else entirely.

Now if you are not saving or you are not saving enough to meet your goals, this is where we need to take a look at these miscellaneous costs. Are you spending a high amount on picking up lunch every day when you would like to be spending more on travel? That’s somewhere you can potentially re-allocate your budget. Be realistic when you are looking where to trim your expenses – you are not going to stop eating out completely or never buy your favorite Starbucks drink again – just trim off where you can without cutting things out completely.

Budgeting may not be the most exciting or sexy topic but it can make your life much easier and less stressful! Creating the budget is step one, then you can monitor how well you are sticking to it on a regular basis. Quantifying how much you are able to save and exactly how much you need to save makes reaching those goals attainable. Treat your savings like another necessary expense that needs to get paid each month. You’ll be surprised and more motivated to keep going once you start seeing your savings grow!

If you need a hand starting the savings process, I have put together a Simple step by step budgeting blueprint you can download here for free to start tracking and labeling your monthly expenses, so you can build a personalized budget and savings plan.


Ryan Payne is the President of Payne Capital Management in New York, New York. Questions or comments? Check out Ryan’s GuideVine profile to watch his videos and learn more.

Categories: Savings