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How to Budget in 2024 Thumbnail

How to Budget in 2024

An accurate and realistic budget is a prerequisite for financial health and financial planning. We need an accurate view of your spending to know (1) how much is left to allocate towards your savings goals and (2) what type of future to plan for.

Although there are many types of budgeting systems (zero-based budgeting, 50/30/20 budgeting, envelope budgeting, and more), this post outlines my preferred method of budgeting.

Why You Should Budget in 2024

The following budget system simplifies your monthly budget and allows you actionable insights into your spending. The benefits of this system include:

  • Knowing your baseline “keep-the-lights-on” expenses
  • Proactive planning for big, non-monthly expenses
  • A guilt-free discretionary spending bucket
  • Identifying where to cut back if you want or need to reduce expenses

Step 1: Separate Expenses into 4 Categories

First, separate your expenses into four main categories:

  1. Fixed Monthly – These expenses are exactly the same, month after month after month. Common items that fall into this category include mortgage, rent, auto payments, term life insurance premiums, and internet or phone bills.
  2. Variable Needs – These expenses are basic necessities that are roughly the same each month. Common Variable Needs include groceries, utilities, gas, and homegoods.
  3. Non-Monthly – These expenses are big-ticket items that we want to plan for, but won’t hit your budget monthly. Common non-monthly expenses include travel, non-monthly insurance premiums, home and auto maintenance, and out-of-pocket medical expenses.
  4. Flex/Discretionary – These are non-essentials or wants. Common Flex/Discretionary items include dining out, shopping, and entertainment.

Four major budget categories

Step 2: Set a Budget for Each Expense or Category

Set budgeted amounts for each category based on data from your bank statements or credit cards. Or use an app, like Monarch Money.

  1. Fixed Monthly – This should be the easiest category to budget. All of the expenses in this category are the same every month.
  2. Variable Needs – Although these expenses will fluctuate from month-to-month, reviewing the average of the last three to six months should give you a great starting point for your budget.
  3. Non-Monthly – Determine an annual estimate for each of these expenses and break them into monthly amounts. Breaking these big expenses into monthly amounts allows you to include these expenses in your monthly budget rather than letting them “blow up” your budget when they inevitably come along.
  4. Flex/Discretionary – Rather than set a budget amount at each individual category level (ex: dining out vs. shopping vs. entertainment), set a total monthly budget target for the entire group. Where you spend in this category is not important, so long as you stay within your budget for the entire category.

Sample Budget:

For example, your budget may look like the following:Example of a budget in four main categories

A few takeaways from this budget:

  • Monthly “keep-the-lights-on” expenses total $5,646. $3,896 are fixed expenses and another $1,750 is budgeted for groceries, utilities, and other necessities.
  • A total of nearly $20,000 per year is budgeted for non-monthly expenses ($1,640 * 12 = $19,680). By definition, non-monthly expenses will be irregular, but now these expenses are accounted for and can even be saved for on a monthly or regular basis.
  • The Flex/Discretionary budget of $2,500 may be adjusted based on the household’s goals. If cash flow is tight, this category will likely be the easiest to target.

Step 3: Plan Ahead for Non-Monthly Expenses

Now that you are accounting for the big, non-monthly expenses, you can set aside funds throughout the year for these expenses.

Ideally, you can hold separate savings accounts for each of these big expenses and save for them over time. Then, when the expenses are due, you can withdraw from these specific savings buckets instead of from your cash flow or emergency fund.

A high-yield savings account is a great place for these savings goals. Some banks will allow you to create and name separate savings accounts or savings "buckets" for exactly these types of goals; Ally Bank and SoFi currently offer multiple savings buckets or vaults.

Here are two ideas for funding these non-monthly expenses:

  1.  Monthly Savings: On a monthly basis, set up an automatic transfer into each of your non-monthly savings buckets. In the example above, that would mean transferring $800/month into the vacation fund, $90/month to cover semi-annual auto insurance payments, $500/month into the home maintenance fund, and $250/month into the out-of-pocket medical expense fund.
  2. Bonus Savings: Oftentimes month-to-month cash flow is not enough to regularly fund these non-monthly expenses and goals. However, you may receive bonuses, commissions, equity compensation, or other income throughout the year. When you receive these types of income, make contributions to your non-monthly expense buckets. For example, if you receive quarterly commissions, then put 1/4th of your annual expenses into these buckets with each commission check.

 Without planning ahead for these expenses, budgeting can be demoralizing when these expenses inevitably occur. Setting up a system to account for these expenses is vital.

Step 4: Review, Adjust, and Make Changes


Review the first draft of your budget and answer a few questions:

  1.  Is your monthly takehome pay greater than your total expenses? If not, now's the time to identify where to cut back to get things in-line.
  2.  What are your monthly "keeps the lights on" expenses? This is the total of your Fixed + Variable Needs + Non-monthly expenses.
  3.  Are there any fixed costs that you'd be happy to eliminate? Most fixed costs don't have a lot of wiggle room (rent, loan payments, etc.), but you may see value in offloading expensive gym memberships or unused subscriptions.
  4.  Is your discretionary spending aligned with your values? Now that you've accounted for your keep-the-lights-on expenses, the Flex/Discretionary spending is your guilt-free bucket. Review your discretionary spending and ask yourself: Do you like where this money is going? You may really enjoy dining out but find you're spending more on clothing, which isn't as high on your list. Or vice versa. Be mindful with your discretionary spending to get the most bang for your buck.


Your budget will inevitably be "wrong" initially, but after a few months you will get things dialed in. This is an area where, again, an app can be really helpful. The below screenshot is from Monarch Money and shows an example of monthly 2023 spending in the Variable Needs and Flex/Discretionary categories.

Example of monthly spending on groceries, utilities, gas, home goods and other variable needs from Monarch Money app

This data is extremely helpful in setting an accurate forward-looking budget.

But even after your budget is dialed in, things will change. Your budget will evolve with your life.

Make Changes

Make changes to your spending based on your priorities. If you want to have more to save, target lower Flex/Discretionary spending. If you're on-track for your goals and have excess cash flow each month, look to spend more in the areas that are most valuable to you.


A budget is a prerequisite to financial health and good financial planning. If you don't already have a budget, consider getting started with an app and/or employing this budgeting method. The first step is simply knowing where your money is going.

This four-category method of budgeting is my preferred budgeting method because:

  1. Through the Fixed + Variable Needs categories, we know your baseline “keep-the-lights-on” expenses.
  2. The Non-Monthly budgeting proactively plans for big annual expenditures, so you don't feel like you're "blowing up" your budget when these expenses inevitably hit.
  3. With your needs covered, you have a guilt-free discretionary spending bucket.
  4. We know to look towards the Flex/Discretionary category if you want or need to reduce expenses.