Start Budgeting and Take Control of Your Cash Flow

Once you reach a level of income that meets your needs comfortably, it can be tempting to loosen the reins a bit and stop tracking your spending. However, understanding where your money goes every day means fewer unpleasant surprises when big expenses occur and a better chance of reaching your long-term financial goals. (For related reading, see: 5 Financial Tips for New Parents to Cut Costs.)

The good news is that you have options, even if you hate budgeting. But not every method works for every person.

Spending Plan

We all know a “spending plan” is just a euphemism for a budget, and who wants to do that? Not so fast. The idea is not to scrimp and deprive yourself—it is to be aware of your spending and make sure you are spending money where you intend.

The first step in a spending plan is tracking what you currently spend. You can do this with a variety of apps, Excel, or something as simple as a pen and paper. If you are spending more than you actually want to, you need to know it's happening before you can correct it.

You also want to make sure you have an appropriate level of cash reserves, and that you aren't drawing from them for everyday spending. Ideally, these reserves should be two to three times your core monthly expenses.  If this account starts dwindling after a month or two, then you need to recheck spending, which is likely higher than you thought.  

A few good questions to ask yourself as you create a spending plan:

  • Am I paying for items or memberships I don’t use? 
  • Is my spending adding to or detracting from my net worth?
  • Am I contributing enough to savings and investments?

The second step is revising your plan. If you realize that your spending is out of line with what you really value, make a change. No, this doesn’t mean never going out to eat again or giving up your Starbucks habit cold turkey—it is about reallocating your resources. For example, consider canceling memberships or subscriptions you rarely use and allocate that “found money” to other financial goals. (For related reading, see: Setting Financial Goals for Your Future.)

The final step is sticking to your plan, and there are a number of ways to do this.


Automating as much as possible in your financial life makes it easier to predict how much cash is available to you once savings and bills are taken care of each month. Put your bills on auto-pay, and also automate your saving to “pay yourself first.”  A few more automation tricks:

  • Have regular bills automated to a credit card with cash-back rewards.
  • Call companies to change your due dates on bills so they coordinate with when you are paid.
  • Set up a monthly automatic transfer for big-ticket items like insurance premiums or holiday gifts.

If You Don’t Like to Track Spending

Once you create a spending plan, you should have a few numbers in mind:

  • How much to keep in checking.
  • How much to charge on the credit card each month.
  • How much to keep in reserves.

If you know you’re not the type to meticulously count every penny, automate to the extent possible, and for the rest, check in regularly with your online bank accounts or your bank’s mobile app if available. Make sure you are on track to spend and save the planned amounts. It's okay to go a little bit above or below your target from month to month, but if you find yourself going off track for several months in a row, it’s time to review the spending plan. Figure out which categories of spending tend to be the culprit and see if there is a way to make these expenses more automatic and less impulse-driven. For example, if you tend to over-spend at Starbucks, give yourself a refillable Starbucks gift card each month to keep you more aware of the limit. (For related reading, see: 6 Best Personal Finance Apps.)

If You Do Like to Track Spending

For some people, budgeting is actually kind of fun. It is a challenge to see if you can stick to your plan, and it brings a satisfying sense of achievement when you succeed. If you want to be very exact with your spending, the “envelope system,” where you separate out your money for different purposes, is decades old but still very popular. You decide how much to put toward bills, groceries, and other categories of spending each month, and physically put cash in envelopes for each category. When the money is spent, it’s gone, so you either need to spend less in another area, or accept that you cannot spend any more in that category.  

In this age of apps and online banking you don’t need to use physical cash or envelopes. Some banks allow you to create “folders” in your savings account for different goals, and apps like Mvelopes and GoodBudget can sync with your accounts and give you automatic alerts when you are approaching your spending limit. 

Another idea is to get a credit card specifically for discretionary costs. Do not use it for necessities like groceries, gas or kids’ needs—just dining out, drinks, or impulse buys. This can increase your awareness of this kind of spending, and creates a record of it in your monthly statement, which may motivate you to rein it in. (For related reading, see: How to Cut Back on Spending Like a Billionaire.)


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