Road to financial independence: Budgeting

Caroline McKay

August 24, 2023

Welcome to the first of our four-part blog series, “Road to financial independence,” designed to introduce key financial planning concepts and strategies for helping your adult children.

This is the first blog in a four-part series, designed to help you engage your adult children in conversations about financial planning. Read all of our entries in the Road to financial independence series:

Part 2: Starting a new job 

Part 3: Investing 101 

Part 4: Helping children on their financial journey 

There are certain key milestones that we associate with reaching adulthood, such as turning 18, graduating from college or getting a first full-time job. But, as more experienced adults can attest, there is usually no singular event or milestone that transforms a child into an adult. Instead, becoming an adult is more of a journey than a final destination and our experiences and know-how gained over time help shape our ability to navigate the adult world. 

One of the most common challenges on this journey is balancing spending and savings. It is not unusual for individuals or families, no matter their level of income, to find that their spending exceeds their income or inhibits their ability to save. And, for some, this issue is habitual and ongoing.

Enter a tried-and-true planning strategy designed to help effectively manage finances, save for the future, and ensure financial stability: the budget.

While the word “budget” may conjure images of a stern taskmaster withholding the things you want, a budget can actually help you get more of what you want in the long run by guiding you to attentively watch your spending and to set short- and long-term savings goals. Budgeting means creating a unique plan for spending and saving your money: it involves analyzing your income, expenses and financial goals to ensure that your spending aligns with your priorities.

If you have a child who is interested in budgeting or who could benefit from this process, consider sharing these four key steps to creating a custom budget:

1. Understand your financial situation

Before setting a budget, it’s imperative to understand your current financial situation. If you don’t know exactly where your money is going each month, you can’t identify opportunities to redirect that income toward more productive uses or toward savings. To start:

  • Evaluate your income sources: This includes your after-tax income from employment, contract or consulting work as well as investments, gifts and trusts for your benefit.
  • Next, categorize your expenses as either non-discretionary or discretionary.
    • Non-discretionary expenses are those that must be paid to meet your or your family’s essential living needs, such as rent/mortgage, utilities, car payments, groceries, insurance, and other obligations. These are “needs” rather than “wants.”
    • Discretionary expenses are the other expenses that tend to make life more fun and colorful but that aren’t absolutely necessary. These are the “want” expenses, such as dining out, entertainment, subscriptions, club memberships, travel and charitable contributions.

TIP: Remember that some of your expenses may be billed quarterly, semi-annually or annually, so you may need to review a year’s worth of spending to capture all expenses. Then, calculate how much you need to set aside each month to be ready for the periodic bills.

  • Lastly, determine whether there is a regular shortfall between income and spending. Use the budget models discussed below to identify areas to reduce spending, starting with your discretionary expenses, to increase savings. If you find that you have a surplus, evaluate how that surplus is being saved and whether it aligns with the next step: your savings goals.

2. Create savings goals

Formulate savings goals based on your short-term and long-term financial objectives. Consider the following tips for setting your goals:

  • Prioritize building an emergency fund. An emergency fund is a savings account with enough money to cover three to six months’ worth of your living expenses. This designated fund ensures that you are prepared for the unexpected curveballs life may throw at you, such as a surprise car repair bill, a medical emergency or a job loss. Your emergency fund is a cushion to protect you from going into debt from unforeseen events.
  • Identify your short-term and long-term savings goals: What are your financial aspirations? Do you want to…
    • buy a new car?
    • go on a vacation?
    • pay down debt?
    • buy a home?
    • retire?

These are just a few prompts to think about. Once you have determined your financial goals, organize them by the length of time you expect it will take to achieve. A vacation goal would most likely fall under a short-term goal (a few months to a few years), whereas retirement most likely will be a long-term goal (5+ years). Think about how much money you need to be saving and investing now to achieve these goals, given their time horizons and a realistic estimate of investment returns.

3. Determine your budgeting method

Once you have assessed your present financial situation and created your savings goals, it’s time to create a budget by choosing a budgeting method. There are a variety of budgeting methods to choose from, but one of the most popular is the 50/30/20 method: about 50% of your income should go toward needs, 30% toward wants, and 20% toward savings.

Using the 50/30/20 method, review your income and expenses from Step 1 and see how your spending and savings align with these targeted percentages. For example, upon reviewing your spending:

  • Is your overall spending putting you into debt? 
  • Do your discretionary expenses (the “wants”) exceed 30% of your available income on a regular basis?
  • Are you saving at least 20% of your income toward your savings goals? 

Use this rubric to identify opportunities to reduce spending, starting with discretionary expenses, to meet your savings goals. When possible, prioritize paying yourself first! This means filling the 20% savings bucket before allocating money to the 50% and 30% categories. A helpful way to think about this is:

Right way

Wrong way

Income – Savings = Funds available for expenses

Income – Expenses = Funds available for savings


4. Track and monitor your budget

Once you have the basics down, continue to track your spending and savings to ensure that your actions are aligned with the priorities you’ve set in your budget. It may not be exciting, but it’s a necessary part of the process for financial stability. Regularly sit down and review your budget. Understand where your money is going each month. Continue to reduce unnecessary spending when you can. Check to see whether you are on track to achieve your financial goals, or whether your goals have changed. Monitoring your budget and adjusting it when necessary is essential to your financial health.


Budgeting is a powerful tool to clarify finances, maximize dollars, achieve financial aspirations and navigate the transition into financial independence. Reach out to your CIBC Private Wealth relationship manager for more information.


Caroline McKay is a senior wealth strategist for CIBC Private Wealth in Boston, with over 15 years of industry experience. In this role, she is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high-net-worth clients.