Saving money can feel daunting and impossible to do. A study done in May, 2022 found that 51% of Americans have $5,000 or less in savings, while 35% have $1,000 or less in savings.  Many intend to save only to find that they have no money to save at the end of the month. This is where a budget can help.
Budget is a word that most people cringe when they hear. It can be overwhelming to think about budgeting money, but a budget can assist in creating structure and helping to build habits around saving and spending. This article will outline ways to budget and how to create systems that assist with budgeting.

How do I begin to build a budget?

There are many types of budgets out there, this article will focus on the Pay-Yourself-First method. The pay yourself first method is what it sounds like- one puts away the money needed for lifestyle expenses and the savings needed to reach goals at the beginning of each month. The money left over after “paying yourself first” is free for them to use as they wish.

Each budget is different, and everyone has different goals and ways of thinking about money. By using this method, people can outline their own goals and budget in a way that helps them to reach those targets.  For example, if someone wants to renovate their kitchen, they can figure out how much needs to be saved each month to reach that goal in their desired timeline and budget for that. If someone else wants to go on a vacation next summer, they can save the amount needed to reach that goal each month. The purpose of paying yourself first is that one saves their money for these targets at the beginning of each month so that it is already taken out of their checking account.

How do I implement this budget?

There are many different systems one could use to effectively implement the pay yourself first method. It is important to find what works for each person’s unique situation. Below are a few systems that have proved to be helpful.

The envelope system

Many use a version of the envelope system. This is a system in which someone puts money into an envelope for each goal or expense, whether it be eating out, a car payment, or saving for a home renovation at the beginning of each month. They then use this envelope to pay for said expenses throughout the month. This not only allows them to track their spending in each category, but it also allows them to start by saving for their goals. That way they can spend throughout the month without worrying about their savings needs.  Many also find that making the envelope system an online process is an easy way to do this. Credit card companies even track spending categories automatically which makes it easy to track spending. There are also ways to set up automatic withdrawals that help to save money automatically.

Wealth Coordination Accounts

Another system that can help with the idea of paying yourself first is called a Wealth Coordination Account (WCA).

A WCA works is similar to an envelope system but is easier to use for more long term goals. A onetime transfer is made to a separate account. This transfer will include all the money needed to reach your savings goals for that month. Once that money is in the separate WCA account, separate transfers can be made into other accounts for each goal. This method allows someone to get the money they need to save out of their checking account at the beginning of each month. Below is a graph illustrating what this can look like:

The envelope system is a great way to budget for each month and track things on a monthly basis, but the wealth coordination account is a great way to save for bigger goals that may be further down the line. It can be very effective to use both an envelope system and wealth coordination account.

Where do I start?

Knowing how to budget can be helpful, but it is difficult to know where to start. Savings and expenses look different for each person. It is important for everyone to understand their unique goals and expenses. One universal savings need is building an emergency fund.

The Federal Reserve reported that 36% of Americans do not have enough money saved to cover a $400 emergency . This is alarming as emergency expenses are hard to avoid, and not having money saved away for them means one must cut into other savings or find other ways to cover this expense. Therefore, the top priority when saving is to start with an emergency fund. Emergency funds are typically 3-6 months of expenses. This fund allows one to know that they have money saved away in the case that they lose their job, have an unforeseen expense, or any other emergency occurs.

Once an emergency fund is established and funded, one can begin saving for other goals while having the peace of mind that they have their emergency fund to fall back on.

Another great way to take away some of the uneasiness around make financial arrangements is to seek the help of a financial professional. Financial professionals can assist in figuring out savings needs and lifestyle expenses. They can also help with accountability and management of budgets.

Budgeting is not as daunting as it may seem. In fact, creating a well rounding budgeting system can provide freedom and peace of mind around finances.

[1]Backman, M.(2022, May 09). Study: Average American's savings account balance is $4,500:The ascent. Retrieved September 1, 2022, from,further%20credence%20to%20our%20median%20finding%20of%20%244%2C500.

[1]Federal Reserve System. (2021, May). Economic Well-Being of U.S. Households in 2020.Retrieved September 1, 2022, from

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