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How to make a budget

Growing your wealth is easier with some basic tenets under your belt.

This story was published on our How To newsletter, Practical advice for work and life, delivered the way only Quartz can.
  • Alexandra Ossola
By Alexandra Ossola

Membership editor


Whether you have a lot or a little, money probably means something important to you—freedom, power, independence. It might come with some shame around talking about it, or FOMO for how your friends can afford such nice things or expensive vacations. The past few decades have seen a widespread democratization in finance and beyond, but financial education has not followed suit.

No matter what your financial status is—maybe you have a specific goal in mind, like paying off your student loans or buying a house, or maybe you just have the general feeling your money could be doing more for you—learning some fundamentals can take you far. “I think sometimes people have ideas about [personal finance] being more glamorous or sophisticated than it usually needs to be,” says Kristen Euretig, a certified financial planner and founder and CEO of Brooklyn Plans (disclosure: I am a client of Brooklyn Plans). “This foundational work is the most powerful.”

But before you start to follow any financial advice, save money, or grow your wealth, there’s one fundamental (and not particularly sexy) thing you’ve got to do: Figure out how much money you have coming in and how much is going out.

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That one weird trick

This kind of accounting—you can call it budgeting if you’d like—is crucial. “How do you know what the next step is if you don’t know your current situation? This is where everything starts,” says Stephanie Genkin, a certified financial planner and founder of ​​My Financial Planner LLC.

Usually it involves an honest assessment of how much you’re spending each month on recurring expenses (things like rent, cell phone bills, gas, day care) and discretionary spending (dining out, concert tickets, clothes shopping).

“Make sure your spending is aligned with your life goals, with what’s important to you,” says Cristina Guglielmetti, a certified financial planner and president of Future Perfect Planning. “I don’t care how much people spend, but you can only spend a dollar once. If you’re spending it on a discretionary expense, that means it’s not available for a longer term goal.”

Apps or other software can help you take stock. Mint, for example, can tell you how much you spent on what in the previous month; my Chase credit card offers me a similar summary.

Finding a goal

Once you have a grasp on the state of your finances, you can start setting goals with your money.

First, let us be clear: There’s no one ideal breakdown for your finances, says AJ Ayers, a certified financial planner and co-founder of Brooklyn FI. “There’s a classic joke among financial planners—whenever anyone asks you anything, the answer is ‘it depends,’” Ayers adds.

Instead, when Ayers starts working with a new client, she first helps them triage their financial needs based on an order of operations:

Can you feed your family? 

  • If not, Ayers may try to help the client find more money; most experts suggest that people keep committed costs (fixed expenses like rent, bills, car insurance, etc) under 50% of their take home pay.
  • If so, she’ll ask:

Do you have credit card debt? 

  • If so, you may prioritize paying that off, since interest rates are high and debt there begets more debt.
  • If not, or if it’s manageable, she’ll proceed to the next:

Do you have enough saved?

  • Most personal finance experts suggest that everyone have an emergency fund (i.e. money in a savings account, not invested) equivalent to three to six months of their living expenses.

Other factors that Ayers might take into account include:

  • What you’re worried about. Most people are OK living with low-interest student loan debt, for example. Having that debt may not prevent you from trying to achieve other financial goals. “But if you’re up all night worried about your student loan debt and it’s causing issues in your life, that’s probably something you need to focus on,” Ayers says.
  • The type of work you do. If you’re self-employed or your work is seasonal, irregular, or in an industry in which layoffs are common, you might want a bigger emergency cushion, for example.
  • If you have more than one income in your household. That puts less pressure on one person to provide that emergency cushion.

Budgeting schemes

If you don’t have a specific goal in mind (or even if you do), you might be inclined to start budgeting. Again, there’s no one plan that’s right for everyone, but here are some that have become popular in the last few years.

50/30/20: In their 2005 book All Your Worth: The Ultimate Lifetime Money Plan, the mother-daughter team Elizabeth Warren (yes, that one) and Amelia Warren Tyagi popularized this rule, which allocates 50% of income to needs, 30% to wants, and 20% to debt repayment and savings. There are other versions of this depending on your priorities, including the simpler 80/20 rule (80% for spending, 20% for savings) and the generous 70/20/10 (70% for spending, 20% for savings, and 10% for giving).

Envelope method: Physically allocate cash into separate envelopes representing categories such as groceries, dining out, and gas; any unused cash rolls to the next month, but if you run out, you’re out of luck. Financial Blogger Ramit Sethi recommends digitizing the envelope method by creating sub-savings accounts; the envelopes become actual bank accounts and your money automatically moves between them based on predetermined formulas (i.e. take 20% out of my paycheck and place it into my honeymoon fund).

Zero-based budgeting: The gist is all income minus expenditures (including savings) equals zero. This ensures that each dollar has a job to do and allows people to keep a closer watch on their monthly expenses than other systems.

Pay yourself first: Allocate money for savings first, then use what’s left for everything else. This method is easy to automate and is lower-maintenance than some others, but lacks the structure of others like the envelope method.

Have a great weekend,

—Alex Ossola, membership editor (uses Zillow listings as motivation to stick to her budget)

One 🤑 thing

Not satisfied with apps that break down spending after the fact, Khe Hy, a former Quartz contributing editor who had worked as an investment banker, advocates for a more hands-on method via the viral app YNAB (You Need A Budget). The $84-per-year software requires users to categorize expenses as they’re happening; as the month goes by, spending will be deducted from each category. Spend too much from one category and you’ll have to cure the deficit by moving money from another. At the end of the month, everything resets. (A similar, cheaper version is Expenses OK.)

Hy likes this approach because it closes the gap between budgeting and action. “Tools are great, but if they’re not part of a broader framework, they won’t shift our behavior,” he writes in his treatise on YNAB. “Buying fancy running shoes won’t prepare you for a marathon if you don’t have a training plan. If there’s no unifying purpose pulling all the individual actions together towards one larger goal, there’s no way the habit will stick.”

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