How to save money by developing a budget

There’s a saying that is oft quoted in personal finance communities:

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”

This quote is attributed to Wilkins Micawber, a fictional character from David Copperfield, Charles Dickens’s novel written in 1850.

Put into economic terms: you’re better off running a surplus than a deficit. It’s a bit simplistic and the reality is a little more involved, but the premise behind it is sound: the best way to get in control of your financial life is to ensure that your earning outweighs your spending.

There are two ways to achieve this supposed recipe for financial happiness; one is by increasing your income and another is by decreasing your spending (or both).

There are many ways to increase income. In previous generations, the most surefire path to a comfortable retirement was to spend 30–40 years in the same company and leave with a built-up pension. Nowadays, loyalty to a single employer is far from the norm, and many studies show that employees who accept outside offers have the fastest salary growth.


  • do your job well

Not only are you setting yourself up for promotions within the same company, you are making yourself into a better candidate for an outside hire. Make sure that your resume accurately reflects your skills, promotions, successes, and achievements.

  • know how to negotiate

You should be well aware of the performance review cycle at your own job. Stay on top of the timeline, you may have to request one if it is not automatically brought up. Think ahead about how to best communicate your successes and goals. Sometimes the best way to know your value is to seek an outside offer as a comparison before your review

  • be ready to move on when the time is right

The second way to achieve your financial goals is to develop a budget and stick to it. For most people, there are a lot of financial drains that are not necessary or even adding any value or enjoyment to your life. The first step is to sit down, comb your finances, and identify the areas you can cut back or eliminate completely.

This free budgeting tool can identify some areas to scale back.

Perhaps the number one most useful budgeting tip is to put your savings on autopilot. This means that once you determine the amount of money you need to get by on a weekly basis, setup an automatic transfer into another account as soon as your paycheck is deposited. Once that money is transferred out, you don’t spend it, thereby reducing the chance that you will overspend with money that was destined for saving. Another non-electronic way of doing this is dividing your cash up into envelopes for “necessities”, “fun money”, “saving and investing”, etc.

By putting this on autopilot, you are taking one giant step forward towards making reducing your spending a habit.

(Debt can be a useful tool in many circumstances, but that is a discussion for another time. For the purposes of this article, we will focus on what makes sense for most family budgets: keep your spending within your means.)

[This is a simple tool that recommends ways you can cut back on your budget based on your answers to 10 easy questions].

If you want something more involved, YNAB is a more sophisticated, premium budgeting software offers a 34 day free trial. Read the full YNAB review here.