How to Budget and Avoid Debt

How to Budget and Avoid Debt

Daniel L. Fiorica, Sales Support Manager

Now that 2020 is here, you’re probably looking to rein in some of the financial excess that becomes commonplace around the holiday season. You may even be a part of the one in four Americans1 that find themselves in debt thanks to holiday spending, and looking to make a dent in what you owe on your credit cards. Earlier this month, I authored a blog that discussed long-term financial resolutions, detailing six steps toward attaining financial wellbeing. This time, I’m focusing on one of those steps: having a detailed budget in place that actually works for you.


Learning how to budget for monthly expenses is the key to getting out of debt – and staying out. But budgeting isn’t always easy. It helps to accept the need for some kind of structure. With that in mind, here’s a two-step guide to creating a monthly budget:

First, find and fill out a budgeting template. Microsoft Excel has some, along with plenty of user-created open source options on Google Docs. Create a separate line-item for similar purchase categories, such as “daily food/drink,” “Gas,” “Auto loan and Insurance,” “Rent & Utilities” etc. Include a line for your liquid savings contributions, even if you’re not currently contributing. As accuracy is crucial, you should use historical information to fill in your true expenses; don’t just “guesstimate.” The exception to this rule would be for expenses that vary month to month, such as how much electricity you used, or how many times you filled up your gas tank. For this, use an average of at least four months adding an additional 15 percent for cushion and seasonality. Make sure you remember expenses beyond the basics that regularly come up. For example, do you ever feel like there’s an unexpected event that occurs at least once a month? A birthday, holiday, celebration, etc.? Plan for this by creating a line for “Misc. Expense.”

Secondly, start to put the pieces together to form your budget. After everything is filled out, go through your list and create categories based on the method of transaction. Here’s an example:

Fixed Monthly Expenses Debit Card Purchases Revolving Debt Payback Savings
Rent - $1000 Gas - $250 Credit Card 1 - $100 3 Months' Expenses Goal - $75
Auto Loan - $250 Gifts - $100 Credit Card 2 - $35 Misc. Expense Savings - $50
Utilities - $200 Food - $350 Credit Card 3 - $200
Cell Phone - $100 Entertainment - $300

Once you have a clear view of your categories, create separate deposit accounts for each. Once opened, adjust your direct deposits and/or automatic transfers and payments so your accounts are adequately funded to cover all your expenses. Doing this helps ensure your accounts are working for you, and not the other way around.

How much money you dedicate toward building up your savings will vary. Industry experts suggest a range of 15 to 30 percent of your total income. The problem with this approach is that it doesn’t factor in any amount of urgency in relation to how much you should have saved. A few easy math steps will help you discover that number:

    • Add up every monthly expense/purchase/payment that you have (excluding any current savings’ contributions).
    • If you don’t have three months of savings established, multiply the total by three (double it if you have three, but don’t have six). This number is your savings account goal.
    • Have you already made progress toward this number? Subtract out current savings on hand, and “voila!” that is your savings resolution.
    • Now, take this number and divide it by 12. The number you’re left with is your monthly savings contribution amount. If you stick to this number, you will meet your goal in one year. Adjust upwards or downwards based on how realistic this is in relation to your income/expenses.


Following these steps will allow you to develop a financial cushion over time that will in turn allow you to pay down debt and avoid it in the future.

How to Budget: Easier Said Than Done?

Of course, there’s a big difference between adopting a framework and putting it into practice. It’s not easy to stick to targets, but there are numerous tips for saving money while still enjoying your life. These include reducing debt payments by consolidating loans, utilizing cash back credit card rewards, using the internet and apps to find the best deals on purchases and minimizing banking fees and interest rates by choosing the right financial institution.

Try to get in the habit of checking in on your bank statements once or twice a month, to ensure you aren’t overspending in any categories. If you find that your expenses aren’t matching up with what you planned, you may have to consider reworking your budget or evaluating areas you could cut down on spending. It will also be motivating to see your savings accounts slowly building up as you reach your savings goals!   

Budgeting may seem overwhelming, but with the right mindset and process – and the will to do so – it can be made much simpler and painless.


This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition are made

1 Retrieved from