Budgeting 101

Solid budgeting is the bedrock supporting any financial plan. Through effective cash budgeting, you can pay your bills on time, purchase big-ticket items and invest money over the long term. For motivation to stay the course, your cash budget originates from a list of well-defined financial goals.

Financial Goals

Financial goals provide a sense of direction to your cash budget. Common financial goals include saving up cash to provide for a first-time home purchase, college education or retirement lifestyle. Use specifics to categorize and personalize each financial goal according to time frame and total costs. A Midwest couple, for example, may hope to purchase a second home on South Beach within the next five years, and would then need $30,000 in cash for a down payment.

Savings Projections

A financial calculator would help you to toggle through various scenarios according to savings amounts and rates of return necessary for securing a future lump sum of cash. With this information, you will analyze your current finances to determine whether your goals are actually realistic. To do so, you will subtract your current monthly expenses away from income and calculate free cash flow available to save towards your goals. If your goals appear out of reach, you may need to put in more time at work and also cut expenses to increase cash flow. To manage a cash budget, you must separate discretionary spending from committed expenses.

Discretionary Spending

Discretionary spending goes towards the purchase of consumer items that are not necessary for survival and do not add value to your bottom line. Consumer goods and services may therefore include concert tickets, designer clothes and fine restaurant dining. You will eliminate discretionary spending from your budget altogether if you are having trouble paying bills and achieving your financial goals. In certain situations, a discretionary purchase can motivate you to get your finances in order. Perhaps you will treat yourself to a Caribbean cruise, after paying off all credit card debt and saving $15,000 in cash reserves.

Committed Expenses

Committed expenses are necessary to observe the law, avoid loan default and maintain a healthy living standard. Rent, minimum debt payments, income taxes and utilities are all examples of committed expenses. For affordability, your total housing and debt payments should come in at less than 30 and 36 percent of your gross income, respectively. A reduction in overall committed expenses typically requires a major lifestyle change. Perhaps you could move into a smaller apartment, in order to save $300 in rent each month.


Over time, you should work to put at least 10 percent of your gross income into savings and investments. As a beginning investor, you can make direct investments into mutual funds and stocks for as little as $50 each month. Onyx Investments, of course, will be here to help.