Smarter spending: 5 tips for building a budget

February 15, 2024

The Era team

The world of finance can feel overwhelming, and it can be hard to know where to begin your personal finance journey. That’s why we built Era, an all-in-one financial management tool, to help you, one step at a time. And the first step is creating a budget.

Budgets are like fingerprints — they’re unique to you. The good news? Era can help you set up a budget and take actions to help you stick to it, creating a solid foundation for your financial future. Let’s dive in.

1. The starting line

Start by precisely tracking your income and your expenses — exact numbers matter.

If you have a salary, your income will be relatively static month-to-month. If you’re an independent or hourly worker, what you’re earning can fluctuate. When in doubt, ask Era to calculate your income.

Next step: Expenses. Use Era to tell you how much you’ve spent each week or month, or ask Era what your average expenses were over the last six months. You can use bank or credit card statements or paper receipts. Whatever the method, know how much you’re spending.

Then, divide your expenses between needs, wants, and debt. This framework will help you adjust spending habits if you need to. Needs are things like rent, food, power, and internet. Your wants are expenses like HBO (though I need season two of The Last of Us), grabbing coffee with a friend, and your next vacation. A common form of debt are student loans, but if you have any other kind of debt, like credit cards, you should note that too.

A popular budgeting trick is the 50/30/20 “rule” — 50% of your income to needs, 30% to wants and 20% to savings and debt payments. Like many things in life, the 50/30/20 “rule” isn’t a hard and fast rule, but it’s a helpful guideline when you start budgeting. If you only spend 40% of your income on needs, you can save a little more or treat yourself to a special dinner. If you need to allocate 60% of your income on needs, you may need to look at how much you’re spending on wants to ensure you can still save and pay down debt.

Because your needs, wants, and debt will be different from other people, try the following prompts to see what Era can do for you:

  • “How much am I spending on bills? What percentage of my total income are those expenses?”
  • “How much am I spending on going out to eat and getting coffee?”
  • “How much do I spend a month on entertainment?”
  • “How much am I spending on average each month on Amazon?”

2. Embrace your inner Bill Nye

Just like your budget is unique to you, so is how you budget. Embrace your inner Bill Nye and experiment. Maybe it’s a spreadsheet, maybe it’s a piece of paper on your fridge, or a whiteboard in your room.

The format doesn’t matter. What matters is making a budget and sticking to it. The peace of mind you’ll gain is invaluable, and it will put you on track for financial wellbeing. Whether your goals are to pay off student loan debt, build up the savings you need for retirement, or cut down on buying clothes, it all starts with a budget.

3. Mind the subscriptions

If it feels like everything is a subscription — TV, entertainment, gym memberships, toilet paper deliveries — you’re not alone. The average monthly spending on subscriptions in 2022 was $219, more than 2.5 times what people thought they were paying.

Tracking expenses that are subscriptions or recurring costs in your budget is a great way to get spending under control. After all, we probably don’t need Spotify and Apple Music, right?

4. Saving = an investment in YOU

Remember the 50/30/20 rule? Saving 20% of your income is hard and one of the best things you can do to grow your wealth. Most people save for many reasons at once — what you’re saving for impacts how you should save.

If you’re saving to make sure you’re prepared for an emergency expense, you’ll want to use some of that 20% to build up three to six months’ worth of living expenses in an easily accessible savings account. The same is true for saving for a major expense, like a downpayment for a house. Era can automatically move money from your checking account to a savings account with a simple command like, “Move 10% of my income into my savings account every month.”

Paying off debt is another way of saving — the less debt you have, the more wealth you have. Use Era to automate monthly student loan payments or ask Era which credit card you should pay off first and tell Era to make those payments.

Preparing for retirement is another common reason to save. Unlike a rainy day fund, putting cash in a savings account isn’t the best way to save for retirement. Consider an individual retirement account (IRA) or 401k so your savings for retirement are invested into stocks and bonds, growing your money over time. Questions on how to save for retirement? We’ve got you covered, just ask.

Bottom line: no matter what you’re saving for, stick with saving 20% when you start.

5. Take it easy

You’re beginning your financial journey, and you won’t be an expert on day one. That’s okay! We’re here to answer all your questions, but there’s one thing only you can do: Don’t beat yourself up.

If you don’t stick exactly to your budget the first month, that’s okay. Try to improve the next month, and be patient with yourself. The more you get comfortable with budgeting, the better you’ll be. Before you know it, you’ll be a pro and we’ll be with you every step of the way.