New Year – New (improved) Way to Budget


By: Hirsch Serman, MBA, CPA, CDFA

I have always been a huge proponent on having a budget.  As I have helped more and more clients, I have struggled with why working a budget was not as effective as it should be.  Then I realized, while it is important to create a budget, the way people do it is wrong…or at least extremely limited in its educational value.   Oh don’t get me wrong.  It helps with understanding how much you spend and how much money is coming in, but it does not help you understand your spending habits nor does it improve behaviors around expenditures (which are essential to financial wellness).

There is an old adage that if you fail to plan, you plan to fail.  Creating a budget helps you take control of your financial wellness, get a better grasp of your money, and learn how to manage your money better.  No matter how you track your budget (apps, websites, spreadsheets), it is important to understand your cash flow.  You have money coming in (usually the easy part to identify) and money going out (and it seems to go far to quickly and to too many places besides your bank account).  However, the traditional budget does not highlight the fact that it is crucial to understand your expenses – the essential expenses vs. enjoying life expenses vs. unnecessary discretionary spending.

The old way of doing a budget is to look at:


Less: Taxes

Less: Expense

Hope something is left over

While it is great to do this, it leaves “money on the table” that could be in your pocket.    Having a realistic budget helps you plan for financial goals (vacations, college, retirement and more) as well as have more control over your finances.  Having financial goals and working towards these goals through a budget increases your likelihood of meeting your future needs.  The key is understanding your spending habits and learning to monitor your finances in a realistic manner that works for you.  No matter the reason (I am sure they are all good reasons) you want to create a realistic budget, you can follow these steps to get started:


Here is the new improved way to create an impactful budget.

Step 1: Record your essential expenses, nothing else!

Step 2: Know how much money is coming in, NOT your income.

Step 3: Have a conversation

Step 4: Record your other expenses

Step 5: Create healthy Spending habits

Step 1: Record your essential expenses, nothing else!

It is critical to look at your expenses in categories.  The first is those are that essential to survive.  This includes rent/mortgage payments, groceries, electric, basic transportation etc.  This does not include Cable, Netflix etc. – you can survive without them!  Getting a handle on these indispensable expenses is a pivotal step in understanding your spending habits and sets the course to financial wellness.

Step 2: Know how much money is coming in, NOT your income

In many people’s minds their income is what they can use to live off of (and hopefully to save).  Unfortunately, this common thinking is not correct.  For most people, taxes, social security, and other payroll deductions are first taken out of one’s pay check prior to receiving your money.  This means if you have a salary of $100,000 that you do not have $100,000 to use.  Knowing your net income (your remaining income or final take home pay after these types of deductions) is vitally important.  Having an extra source of income like a hobby or side business may be helpful as well.

Step 3:  Have a conversation

With yourself or even better, with a financial professional who will help keep you accountable.

This conversation should help you evaluate your expenses for absolute necessities.  Any spending beyond this point is discretionary spending.  Plain and simple.  I am not saying you cannot spend any other money.  I am saying that once you understand this benchmark of essential expenses relative to your income, you can make more informed decisions based on your priorities.

Step 4:  Record your other expenses

This includes your “enjoy life” expenses and unnecessary discretionary spending.  It is fine to eat out, however, make it a treat vs. the norm.  Yes, this one is a pain to do, however, it is amazing how much you can learn about your spending by diligently tracking what you spend.  More importantly, it empowers you to make choices that positively impact you.

Often working with someone in the beginning helps keep you accountable to your plan until you are more comfortable and familiar with creating and living to a reasonable budget.  I remember speaking to someone and suggested they subscribe to Netflix and Hulu (they already had a Prime account) and then to cut the cable.  They still have plenty of viewing options and this comes with about $210 a month savings.

Step 5:  Create healthy spending habits

By tracking and understanding where you spend money it is easier to identify how to make adjustments and to be aware of your spending habits.  You will have the ability to recognize your spending habits – healthy and not so healthy – and modify them as needed.  Often slight adjustments can result in thousands of dollars in savings.

At this point you should be a pro!  Knowing what you have coming up financially in the next month can reduce your stress.  Standing at the register and having the light bulb go off on impulsive purchases is huge. It also helps you think about ways to get the impulsive purchase at a significantly reduced price.  For instance, I have spoken with people who grab a magazine as they are waiting on line to pay (and yes that is exactly why they are positioned there – to sucker you in).  Often you can get an entire year’s subscription for the cost of 2 – 3 magazines taken of the counter.  Changing a habit can be tough.  It may help to work with someone for a short time to objectively review your spending with you.  Once you start, it often becomes the motivation to look for more ways to create financial wellness.


Hirsch Serman, MBA, CPA, CDFA is the founder of Lifecycle Financial, a company that helps those going through Divorce and other life cycle changes to navigate the financial pitfalls of a new life dynamic.  The company was founded through personal experiences in divorce and watching the changes in an aging parent.  He has worked in finance for over 20 years (including financial planning and tax) and has taught on the university level as well as conducted seminars for high school youth on personal finances.  Hirsch is a member of the American Association of CPAs, The National Association of Divorce Professionals, and the American Association of Daily Money Managers (AADMM).

INC., US News & World, The Memphis Business Journal, Medium, Authority Magazine,, and many other media outlets have all covered his work in Divorce and Hirsch was selected to be a New Orleans Entrepreneur Week Fellow.  Hirsch has a passion to serve others and has worked with numerous non-profit boards including the United Way and is a trustee of Texas College.  Please reach out with any comments to [email protected].


Please note that this is a re-post from a previous year and has been used with most of my clients.