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Budget or Savings Plan?

David Hicks

Let’s be honest: no one likes dealing with (let alone thinking about) their personal finances, least of all budgeting.

Yet, according to a recent survey[1], 8 in 10 Americans use a budget. Think about that for a minute. Does that sound remotely (and honestly) accurate to you?

Additionally, their results are up 10% from the last two years. While these numbers seem very encouraging, I take issue with their accuracy. “80% of people use a budget,” really? In their survey, they mention that nearly 100% of their respondents believe everyone needs a budget. Also, surprising (to us) is that Baby Boomers are the most likely generation to use a budget.’s approach might be more scientific, but our company’s anecdotal answers from hundreds of conversations over the past several years seem to be more realistic. I think the 8 out of 10 figure is accurate if we are talking about people not using a budget. And why would most people? If you are not in too much debt, and generally only spend what you bring in from your salary or wages, what is the issue? Aren’t their better things you could be doing with your time than categorizing expenses and rebalancing monthly expenses where need be?



In a more realistic post from 2018[2], a writer for NADSAQ gave a more accurate answer to the use of budgets by Americans. According to a survey they referenced from a Gallup poll from 2013 (despite its age, we still believe this is a more accurate representation than the survey), two-thirds of Americans do not budget each month, either written or computerized. They listed 10 reasons why this might be so:

  1. Budgets create limits
  2. People fear what they will find out
  3. They experienced a form of abuse by others in the past relating to budgeting
  4. The belief that only poor people need a budget
  5. Budgeting takes time and effort
  6. People lack the knowledge to create and maintain an effective budget
  7. They have failed to stick with one in the past
  8. They fear getting in a fight with their spouse
  9. They think that numbers are for nerds
  10. They think they simply do not need one

With these reasons in mind, specifically point 6, we thought we would give you a little nudging in the form of some practical ways that you can implement a budget. These are all examples,  based on your personality and what you are hoping to accomplish, that can help you start the budgeting process and review/maintain it at least monthly. We will start with the simplest method and move to more detailed approaches. Little changes now can have a massive impact long term.


The 20/80 Save then Spend Method

Think of this as the minor leagues of budgeting. This will help you become generally aware of your situation and will take the least amount of time to review, and it goes something like this:

  1. Know what your gross (pre-tax) income is.
  2. Commit to saving 20% of that number per check (some will choose to focus on their net (after-tax) income)
    1. Gross income of $100,000 x 20% = save $20,000/yr
      1. You get paid weekly = save $385/check
      2. You get paid every other week = save $769/check
  • You get paid twice a month = save $833/check
  1. Gross income of $40,000 x 20% = save $8,000/yr
    1. You get paid weekly = save $154/check
    2. You get paid every other week = save $308/check
  • You get paid twice a month = save $333/check
  1. Where do I put my savings?
    1. Do you have an emergency savings fund of at least 6 months of your income?
      1. The likely answer is “no.” If that is the case, consider building this up then moving on to investment accounts
    2. Do you have a retirement plan (401k, 403b, TSP, SIMPLE IRA, etc.) at work?
      1. If yes, start contributing to it or increase your contributions if allowable, especially if your company matches your contributions.
    3. Do you have personal retirement accounts?
      1. Depending on your income, consider opening a Roth IRA
    4. What do I do with the rest of my income?
      1. This will cover things like charitable giving, your debt payments, utility bills, groceries, etc.
        1. This method doesn’t get too specific, other than building savings into your routine and starting the process of assigning purpose to a portion of your money.


The 10/20/70 Give then Save then Spend Method

This method will help you continue your journey toward giving for purpose to your money. For this method, simply follow the 20/80 formula above with one added step at the beginning. Take the first 10% (broadly considered a good common giving amount) of your gross income (again, some will choose to use their net income)  and give that to your favorite charity. For some it will be their local church, for others, it might be a local animal shelter, and for others a local, national, or international organization they belong to. Depending on how the organization is structured, there might be a tax benefit for you doing so. The figure of 10% is not required but is a good rule of thumb that can be used as a starting point. Should you give less than 10% or should you give more? The answer to that one is, unfortunately, up to you! Again, this method helps you continue to give meaning to your money and will likely help you to do some good in the process.


The 20/50/30 Save then Bills then Play Method


Generally, this rule works best based on your net monthly income. It is like the 20/80 method above, but earmarks 30% of your income for “play.” That portion may be better categorized as “wants,” while 50% goes toward your “needs,” and 20% to savings. This method can work well if you desire to have some more flexibility in your budget to do things you like now, while still saving for the future. This method could also lead to you being more aware of what your general monthly obligations are and move you in the direction of compressing those costs as much as you can by finding cheaper alternatives. You might find that it is initially difficult to pay your “needs” within 50% of your income. You might discover that you can get a less expensive mobile phone service than what currently you have, better insurance rates by shopping around, spend less at the grocery by doing some weekly meal planning, or using websites or apps that can tell you where you can fill up your car and save 20 cents a gallon. The goal here is not to become a “cheapskate” or “penny-pincher,” but to use your money more efficiently.


Where to Next?

At this point, you are probably thinking, what’s next? And to that I suggest considering the following:

  1. If you would honestly say you do not have a budget, then start small with the 20/80 to establish some roots.
  2. If you have some roots established, move on to the beginning of placing for purpose the dollars hitting and leaving your bank account by using the 10/20/70 or 20/30/50 methods above. Try them out for a couple of months and adjust where needed. These percentages are good rules of thumb.
  3. If you like the idea of giving meaning to the inflows and outflows of your money but want to get even more specific, then it is time for you to move on toward creating budget categories. It might take you a few months of finding the right percentage of your income to allocate to budget, but it will be worth it in the long run. Some general categories could include tracking: housing; transportation; food; giving; saving; recreation; debt payments; etc. We will explore this more in detail in a future post!


If you need help in organizing your budget, our industry-leading financial planning software can help with that! Start the process of building your budget, which is one piece of income planning, which is one aspect of financial planning.

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