Build a budget that works
A budget that ignores how you actually live isn't one you'll stick to. Learn how to budget in a way that supports your goals without sacrificing what matters to you.
In the previous lesson, you translated your goals into monthly numbers. Now the question becomes: how do you organise your day-to-day spending so those goals actually get funded? This is where budgeting comes in.
What is budgeting?
Budgeting is the process of deciding in advance how you want to allocate your money. It helps you make intentional choices about spending, saving and investing.
Budgeting doesn’t need to be about cutting everything back or following strict rules. You can plan a budget that takes into account your habits, your priorities and your financial goals to put money aside without feeling like you’re constantly depriving yourself. When your choices reflect what matters to you, you’re more likely to maintain them.
The 50-30-20 rule?
You may have heard of the 50/30/20 rule, or seen it mentioned in a previous lesson:
It’s a helpful guideline, but for many people today, it simply isn’t realistic. Depending on your income, location and life stage, your split might look more like 60/30/10 or 70/20/10. In practice, most people’s numbers don’t fit neatly into one formula. Everyone’s situation looks a little different.
1. Pinpoint areas of high or unnecessary spending
Take an honest look at your spending blind spots — the areas where money seems to disappear — as well as any other areas of high spending outside of your essential costs. Are there certain categories where you tend to spend much more than you expect to?
2. Think about what matters to you
If you want a budgeting plan that you can realistically stick to, it needs to reflect how you actually live. Decide where you’re comfortable making adjustments and where you’d prefer to set aside dedicated money – so you can continue enjoying the parts of life that matter to you.
⛰️ | 🥪 | 🚲 | 🧮 |
|---|---|---|---|
David needs to put aside an additional €200 per month to reach his goal of travelling to Patagonia in the summer. | He could stop buying lunch at his favourite café, but he values that daily break and the chance to step away from the office. | Instead, he decides to cycle to work more often and reduce his fuel costs. | The financial impact is similar, but the lifestyle impact feels more manageable. |
3. Choose a budgeting approach that works for you
The right budgeting approach for you not only takes into account your personal situation and priorities, it also needs to feel logical and intuitive. Some people can stay on top of a weekly or monthly budget, or a budget per spending category. For others, the approach might need to be simplified in order to stick.
A daily budget, for example, is an easy method to stay aware of. As long as your daily budget isn’t too restrictive and allows for a modest day of spending, it can be just as effective as a more prescriptive budget.
Disclaimer: This lesson provides a general overview of a commonly used approach to budgeting. Peaks is an execution-only company and does not provide financial advice.
Key takeaways
✓ | Budgeting works best when it takes into account how you actually live. |
✓ | Rules like 50/30/20 are guidelines, not requirements. |
✓ | Identifying your spending blind spots can reveal where small adjustments make a difference. |
✓ | Protecting what you value makes budgeting easier to maintain. |
✓ | The most effective budget is one that supports both your goals and your lifestyle. |
Build a budget that works
You’ll need:
- Your completed Financial Reality Check
- Your completed Financial Plan
- Your banking or budgeting app, if you use one
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Open the Budget Planner tab in your Financial Reality Check. If you’d like to see how it works, you’ll also find an example tab filled with dummy data. Your estimated and actual costs per category should be automatically pre-filled from the exercise you did in the previous lesson.
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Assign budgets to each category in the “Achievable budget” column.
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Keep adjusting your category budgets until you are happy with the saving and investing amount in the Budget Breakdown table