Introduction to Budgeting

Creating Your Budget

When it comes to getting your finances in order and starting to invest, you need to follow an overarching set of principles. First, you need to set your financial goals. This means setting a time horizon, establishing priorities, and evaluating how much risk you want to take. It is extremely important to stick to your plan and to reevaluate and adjust the plan over time based on your circumstances.

Additionally, you need to become familiar with the different investment vehicles and types of assets in order to feel comfortable making invest decisions. Later units will look at the different types of assets, but feel free to also look at the investment tips and Q&As on our instagram that address some of these topics.


When planning out your financial goals, it is important to figure out how to allocate your money by creating a budget and deciding how much money you can reasonably spend, save, and invest.  To do this, you need to figure out what your after-tax income is. The easiest way to check this number is to look at your monthly bank statement and to look at your earnings or deposits. You should also consider your 401k contributions, i.e. how much are you automatically saving for retirement.

Budgeting and Budget Plans

Before choosing your budget plan, you should look at your current expenses. Most online banking apps let you break down your spending into different categories from health to restaurants to transportation. While you can adjust your spending on say restaurants and shopping, it might be more difficult to cut your spending on other categories, for example, transportation and basic living expenses.

The next step is to choose your budget plan. Here are a couple of examples and their principles:

The Envelope System

Divide your income into different categories and assign each of these to an envelope. When you spend money on something, take money out of the corresponding category envelope and pay for it with that. A simple example: when you want to spend money on a movie ticket, take out money from the entertainment envelope. Do not take money from a different envelope! This simple exercise can make you more mindful of your spending and help you better track each category.

Pay Yourself First

Instead of setting money aside at the end of the month, this plan sets a certain amount of money aside for savings at the beginning of the month. Through this method, you don’t need to worry about not reaching your saving goals and instead, you focus on not overspending for the rest of the month.

The Zero-Based Budget

The goal of this budget plan is simple: have your expenses be equal to your income. You log every single expense and think through how you will spend your money in advance until there is no more left. The primary advantage of this approach is that each dollar of your income is given purpose i.e. since you are tracking how much money is being earned and spent, you never spend more than your income. This also doesn't mean every dollar has to be spent in the literal sense of the word - any dollars that are not spent, can be allocated to your savings or emergency fund for example so that the net result is your categorized expenses equal your income!


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