How to Budget Effectively
Ann Garcia, CFP®
Head of Content & Author
Ann Garcia, CFP®
Head of Content & Author
Ann is a nationally recognized financial advisor and author who provides comprehensive financial planning and investment management advice to families, businesses, and individuals. She obtained her BA from the University of California, Berkeley, is a member of Phi Beta Kappa, and holds the Certified Financial Planner certification. Ann lives in Oregon with her husband and is the proud parent of two recent debt-free college graduates. In her free time, she enjoys running the Wildwood Trail and exploring Portland's vibrant food scene.
Tihomir Yankov, JD
Financial Advisor, Founder & CEO
Tihomir Yankov, JD
Financial Advisor, Founder & CEO
Tihomir is the Founder, CEO, and Registered Investment Advisor Representative of Tobi. Prior to founding Tobi in 2023, he was a consumer financial services attorney in private practice for twelve years. He earned his BA in Economics from the University of Virginia and his JD (cum laude) from American University. He lives on a small farm outside Washington, D.C. with his wife and middle-school son, perfecting the art of keeping their alpaca, llama, horses, and sheep in a semi-perfect state of harmony. Their rescued alpaca became the inspiration for the company's mascot.
Introduction: Your Most Essential Financial Tool
When it comes to achieving any financial goal, it all starts with understanding where your money is going – and how much you have left to save and invest towards the goal.
That’s why Tobi’s Budget & Spending Card might just become your most-frequent play. It’s designed to help you break down your spending habits and track how much you’re setting aside as savings and investments to hit your goals.
Step 1: Track Your Income and Expenses
Ever wonder why your paycheck seems to vanish so quickly? The Budget & Spending Smart Card™ offers a clear breakdown of your income and expenses each month, showing you exactly where your money is going and how much you have left over. By knowing the ins and outs of your spending, you can start making smarter decisions and identify opportunities to save.
Step 2: Optimize Your Spending with the Card’s Dashboard
The Smart Card™ dashboard makes it easy to analyze your spending and find areas where you can cut back. Are subscription services eating away at your budget? Is dining out leaving you with less to save? The dashboard helps you pinpoint these areas, freeing up money to save and invest for long-term growth.
Step 3: Work Towards Investing 15% of Your Gross Income
As a general rule, you should aim to save and invest at least 15% of your gross (pre-tax) income throughout your working years. This might sound unrealistic — especially if you’re just starting out — but don’t be discouraged! The key is to work toward it gradually. For example:
- If saving 15% feels impossible now, aim to increase your savings rate by just 1% each year as you get raises — and you will get there. And on the flip side: life happens, and there may be some years when reaching 15% no longer feels within reach–even though it did before. And that’s ok! The key is to adjust and work your way back as circumstances improve.
Over time, this small but consistent progress can bring your future into better balance with the present.
Where should your savings go first?
The Smart Cards™ will help guide you! The Budget & Spending Smart Card™ connects seamlessly with the rest of the Smart Cards™ to help prioritize your goals—from emergency funds to long-term investments. But your needs must come before your wants! So the rest of the Smart Cards™ will wave you down to make sure that you’re hitting the right mark and in the right order:
- Emergency Funds as Cash Savings: Imagine losing your job in a recession and needing 3 months or longer to find work. Having cash savings ensures you’re prepared for life’s uncertainties.
- Pay Down High Interest Debt: Eliminating debt with an interest rate greater than 8% comes with no investment risk and is usually a better place than investments.
- Long-term Investments: Only invest for the long term. Your time horizon before you need the money should be at least five years – but preferably ten. Plug your numbers in our Growth Calculator and see for yourself.
- Shorter term goals: Hit short and medium term goals. Do not invest money you will need within five years. Instead, those should go into high yield savings.
- Stability: Coming soon: we'll help you assess your life and disability coverage. After all, someone needs to have your back if your clock runs out unexpectedly.
Is saving 15% of my income enough?
It depends. The 15% benchmark is great if you’re targeting a comfortable traditional retirement age in your mid-60s and live for another 30 years or so.
But if you want to make work optional at a much younger age—or retire early—then you’d have to invest much more aggressively—even as much as half of your income. This may require that you either cut your discretionary spending or increase your income considerably—or both—in order to accelerate your timeline for financial independence.
Ultimately, the key to achieving your financial goals is pairing a consistent savings habit with the right priorities and investment strategies.
Video Resources
