Northwestern Mutual

Creating a Budget

To reach any financial goal, you need to understand how much is coming in and how much is going out each month by establishing and spending within a budget. 

Creating a budget

You’re not alone if you get to the end of the month and wonder, “Where did all of the money go this month?”

To reach any financial goal, you need to understand how much is coming in and how much is going out each month. The goal should always be to have positive cash flow, meaning you spend less than you earn and you have money left at the end of each month.

To get a better handle on your cash flow, take an honest inventory of all the ways you’re spending money and organize your expenditures into three categories: saving and investing, essential expenses and discretionary expenses. Then, once you have an idea of where your money is going, compare your spending with a rule of thumb known as 20/60/20.

monthly budget worksheet
  • 20 percent of your income should be spent on saving and investing. Pay yourself first, as they say, and save into different types of accounts to give yourself flexibility in the future.
  • 60 percent of your income should be earmarked for essential expenses such as housing, utilities, transportation, insurance, health care, food, student loans and existing credit card debt.
  • 20 percent of your income should be spent on discretionary expenses such as clothing, dining out, personal care, gifts and charitable contributions.

Based on those guidelines, develop a realistic monthly budget that accounts for every expense you have. Don’t forget about or omit certain bills just because they only occur once or twice a year. Those expenses—like traveling home for the holidays or your membership fee to join a professional club—count too.

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