How to budget and set goals

Creating a budget is one of the smartest moves you can make to take control of your finances. It helps you track your income and expenses, live within your means, and work toward the goals that matter to you most. 

Understanding how to spend and save can help you achieve those big dreams of owning a home, starting a business, or contributing to your child’s college fund. Whatever your financial goals, Chase Bank is committed to helping you build a budget using trusted techniques to set you up for financial freedom. 

Step 1: Understand what you own and owe

Before learning how to make a budget, assess your current financial landscape by acknowledging your assets (what you own) and your liabilities (what you owe). Assets and liabilities can also determine where you should focus your budgeting.

For example, if you owe more than you own, you may want to focus on paying down debt. However, if you own more than what you owe, you can begin allocating some of your income to your savings budget or invest that savings to meet some of your long-term goals. 

Step 2: Analyze your income and expenses

Building a budget starts with understanding the basics: the money you earn (income) compared to how much you spend (expenses). It’s important to ensure you’re not spending beyond what you earn, which can create a negative cash flow. 

Chase offers a Monthly Budget Worksheet that makes tracking expenses simple. Just enter your recurring income and expenses to get a clear picture of your monthly spending habits. Don’t forget recurring monthly expenses like rent, insurance, and utilities. These expenses can add up quickly. With this budgeting tool, you can see the power of your spending choices.

Once you know where your money goes, it’s easier to cut back in certain areas. That might mean skipping a takeout order here and there or swapping a night out for a cozy evening inside.

Step 3: How to make a budget that aligns with your goals

Even if you are starting small, budgeting puts you in a stronger position for a financially sound future. Armed with an understanding of your assets, liabilities, income and expenses, you are ready to build your budget.

Setting SMART goals

Start by setting goals that move your financial dreams forward. SMART goals help turn big dreams into clear, actionable steps. Instead of vague goals like “save more,” this commonly used goal-setting framework can help keep you focused, giving you a roadmap to make real progress. 

• Specific: Clearly state your intention with what you want to achieve. An example could be, “I want to allocate 2% of my monthly income to begin building a 3-month emergency fund.” This makes the goal feel tangible and does not leave anything up to question.
• Measurable: You should be able to determine if you meet your goals by measuring a specific number. For example, “If I’m budgeting 2% of my income, in 3 months, I will have $240 saved in my emergency fund.”
• Achievable: Segmenting your goal into small achievements can help you stay on track and remain motivated. Setting a goal of saving 80% of your monthly income might be setting yourself up for failure; you need to live, pay for daily expenses, and enjoy life. Start with a realistic plan and celebrate the small wins along the way to build initial momentum.
• Relevant: Your goals should reflect what is important to you. For example, paying down significant credit card debt might be more important than saving for a vacation. Choose to focus on areas that are most valuable to your future financial well-being.
• Time: Be clear about your deadline for achieving your financial goal. Attaching a deadline for achievements can help you stay on track. Stating that you are going to pay off your $15,000 in student loans sounds overwhelming, but creating a plan to pay off that $15,000 in 10 years may feel within reach. 

Align spending with goals

Take a look at your completed Monthly Budget Worksheet. Here, you can categorize your purchases as essential, nice-to-have, and non-essential. By being intentional with your spending and aligning it with your priorities, you can create a clearer path toward achieving what matters most to you. 

Essential expenses to consider 

Essential expenses are non-negotiables. Rent, utilities, groceries, and all of the immediate needs to survive fall under “essential.” These are areas you must allocate funds, without question. A car payment or other fixed auto-pay expenses may also fall within this category.

Non-essential expenses to consider 

Nice-to-have expenses are non-essential but increase your quality of life. This category can include general entertainment, streaming subscription services, a daily iced coffee, and more. These expenses are the first you’ll want to reduce when it comes to building a budget. You don’t have to cut things out completely, but prioritize what brings you the most value and reduce spending on things that aren’t as important. 

Saving for a big purchase

After reviewing your non-essential expenses, consider what you might be able to live without. It isn’t fair to reduce non-essential spending entirely. Spending on entertainment can boost daily satisfaction, but it is worth looking into what areas you can reduce in an effort to set your future self up for success.

Step 4: Staying on track with your budget

Budgeting is not something you can do once and expect change. It’s a living plan that should evolve with your life, your needs, and your goals. Life happens, and so do new and unexpected costs. Sticking to your budget is important because the money you may have saved while budgeting can help you through those inevitable, unexpected, abrupt financial strains, like car repairs or a trip to the doctor. 

Your future finances

Creating a budget is about financial freedom to pursue your goals, handle life’s surprises, and build the future you envision. With a clear understanding of what you own, what you owe, and where your money goes each month, you are already on the path to stronger financial health. 

Start where you are, set SMART goals, and give yourself grace to ebb and flow with your budget as you get used to decreasing spend in some areas and growing wealth in others. 

Saving for a big purchase can initially seem daunting, but with Chase’s trusted budgeting tools and guide, you can look forward to a healthy financial future.