As 2026 approaches, at the top of many people’s lists of resolutions will be to improve their finances.
Budgeting is a key part of financial health — but if you’re not confident in this area, you’re not alone. Just 59 percent of Americans feel extremely, or very, confident that they have enough knowledge to create a monthly budget, according to a 2023 Pew Research Center survey.
Dr. Michael McMillan, a professor and co-director of the Financial Wellness Center at the University of Maryland, shared five, simple tips with The Independent for creating a sustainable personal budget.
Budgeting is important because it can help harness control of your money and rein in impulsive spending, McMillan explained.
“Having a budget is a positive, not a negative,” McMillan told The Independent, via email. “Having a budget (and an emergency fund) will reduce the stress in your life and make you happier.”
Step 1: Set goals
McMillan suggests establishing a “short-term, intermediate and a long-term budget.” Then, assign goals to these budgets. Each goal needs to be “specific, measurable, achievable, relevant, and time-bound,” he said.
“The primary purpose of creating a budget is to achieve goals,” he wrote.
Step 2: Track your spending
To craft a budget, McMillan suggests tracking every purchase for three to four weeks.
“You may be surprised at where your money is going and on what,” McMillan wrote. “To have a budget that is sustainable and manageable, you have to feel comfortable with it.”
After tracking spending, McMillan says it’s important to answer some key questions about the purchases. His suggested questions include:
- “What did you buy?”
- “Can you see a pattern in your spending habits?”
- “What did you need?”
- “What did you want?”
- “How do you decide what to purchase?”
- “What factors do you think influenced your purchasing decisions?”
Step 3: Craft a budget based on your tracking
Using the tracked list, McMillan suggests classifying spending into three key categories: “Savings (debt reduction), needs, and wants.”
“Apply percentages to these categories,” McMillan wrote. “One commonly used set of percentages is 20% savings, 50% needs, and 30% wants. These percentages can be adjusted to fit your specific needs.”
The amount saved each month should go toward achieving the goals set in step one, he noted.
Step 4: Build an emergency fund
McMillan suggests setting aside money for an emergency fund, which should cover essential expenses for a minimum of three months but ideally up to six months. These expenses are different for everyone but include things like rent, utilities, groceries, medication and insurance.
Step 5: Limit credit card spending to what you have in the bank
McMillan suggests only using a credit card “when you have the cash in the bank to pay for the purchase.”
“For example, you can purchase a $100 item using a credit card, when you have $100 in your bank account to pay for it,” he wrote. “Don’t buy anything that you cannot pay for immediately.”
“Financial decisions should always be based on ‘living within your means’ but we will always have a bigger appetite for things outside of our means,” he added.
“That’s where savings goals and budgets can help you get what you want while still meeting your needs first. You might not get your wants as soon as you would like but you can work towards them.”
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