How to Stick to a Budget: 3 Realistic Tips From Our Head of Financial Planning

We recently rolled out an AI budget building tool that effortlessly creates a personalized budget just for you that gives clear, data-backed recommendations that are fully adjustable and customizable to your lifestyle and goals. It’s part of our larger goal to make budgeting easier and less intimidating; as our Head of Planning Tyler Horn put it, “the B-word gets a bad wrap.” Budgeting isn’t all bad. 

With that in mind, we asked Tyler to give us some tips about how to approach budgeting in a realistic, holistic way. Here’s what he said: 

Tip #1: Align your spending with the life you want to live

I’ve had many clients who have been apprehensive about budgeting because they feel that it is restricting, saying things like “I can’t dine out”, “I can’t go to Starbucks”, “I can’t go on this vacation”. 

However, I would encourage those who feel budgeting is restricting to look at it from a different perspective. Budgeting is a measure of where our money is going each month. It’s not 50/30/20. It’s not envelopes. It’s simply a way to measure where our money is going each month.

So before you start assigning dollar amounts to categories, think about the life you want to live and how you want to spend your money. What’s important to you? What brings you joy? What doesn’t bring you joy? Those are the questions that should influence how you want to build your budget.

Tip #2: Fixed expenses first

Once you have established your spending priorities, it’s time to build your budget. I always like to start with fixed expenses first. Fixed expenses occur nearly every month; they’re the ones you have very little control over—things like housing payments, utilities, childcare, loan payments, etc. 

To build your budget, subtract your fixed expenses from your take-home pay (aka the amount that is directly deposited into your bank account every month). What’s left over is the amount you have to allocate to everyday spending and savings.

Typically, your fixed expenses should represent around 50% of your budget. However, in high cost of living areas, that percentage could be much higher. 

Because fixed expenses are the highest impact expenses in your budget, it’s important you know what they are and how much they make up of your budget. It’s akin to the parable of the stones in the jar: You have to put the big stones in first before you can put in smaller stones.

Tip #3: Measure what matters

Now that you’ve defined your priorities and accounted for your fixed expenses, you can begin constructing the rest of your budget. While you have the ability to set a spending target for every category, when first building your budget, I believe it’s most important to establish your highest priority spending categories. 

Remember: Budgeting is simply a way to measure where our money goes on a monthly basis. And we always want to align our spending and saving with our priorities. So if it’s important to you to be able to travel more, you should define how much you want to spend/save on travel and track that number. If it’s important to you to cook more at home, you should define how much you want to spend on dining out each month and track that number.

There are a thousand ways to segment your budget, and that analysis can often lead to paralysis. If that sounds like you, then when you’re starting out, I would encourage you to define the categories that are most important to you, then measure those categories on a monthly basis.

Longer-term thinking

One thing to keep in mind as you’re establishing your budget is the distinction between long-term and short-term goals. I am a big proponent of living in the moment; however, it can be difficult at times to understand how our short-term decisions affect our long-term goals. If you are having trouble understanding the long term impacts of your spending and saving, Origin has other tools that can help! Check out our forecasting feature or meet with a Certified Financial Planner® to better understand the trade-offs you may need to make in order to accomplish both your short-term and long-term goals.

Ready to get started? 

Build your budget on Origin today.