How to Build a Budget and Build It Well (in 3 Steps!)

Financial Decision Making, Spending & Saving

Budgets are boring, right? But if you want to own your financial future, a budget is an important piece.

“You need to let the little things that would ordinarily bore you suddenly thrill you.”

– Andy Warhol
Andy Warhol bridge in Downtown Pittsburgh, Pennsylvania

Don’t be intimidated by the finance lingo. A budget is a plan for saving and spending money, and it doesn’t need to be overly complex for it to work…

A simple budget shows your income and your expenses. The BIG goal is for your expenses to be less than your income. Wondering how to get started on this easy 3-step budget? Keep on reading!

1. Save First: The most important step in any budget is to identify your savings goal. Make this the first line item in your budget and stick to it! Individuals have more responsibility for their financial future than at any point in the past 100-years.  Accept that responsibility and meet your saving goal EVERY month.

2. Needs: Identify and list the things you can’t live without, literally.  These are life’s essentials.  The Troutwood App helps you better understand what these costs are in different cities.

3. Wants: These are nice to have, but planning and budgeting for them can help turn your dreams into reality.

It can be that easy! Start simple, then build from there.

Stayed tuned for more tips on how to implement & evaluate your budget. In the meantime, the first step is building it. 

Now go do it!

Own your financial future.

woman carrying her baby and working on a laptop

Do these FIVE things and you are literally set financially

Credit & Debt, Financial Decision Making, Spending & Saving

5 BIG money choices that will change your life


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This is, THE key principle at Troutwood. SAVE FIRST. Do not fall into the trap of letting your spending dictate your saving. It doesn’t get more important or more straightforward than this. Whether it’s saving $5, $50, or $100 per month – you pick what’s best for you – just do something and be consistent. When payday hits, put your chosen amount straight into your Roth IRA, 401k, or similar type retirement account.

Goal 2: Understand the Opportunity Cost of Your 1st Car Purchase

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The opportunity cost between a $13,000 car and a $10,000 car for an 18-year old, high school senior who knowingly purchases the less expensive car can be up to $400,000! Yup, a one-time purchase at the age of 18, can have this type of long-term financial impact.

Don’t believe it? Learn how by reading Chapter 5 of The Missing Second Semester (FREE, under “tools” -> “library” in the Troutwood App).

P.S. If you don’t already have the app downloaded, you can do so here:

App Store:

Google Play:

Goal 3: Understand the Opportunity Cost of Your 1st Home Purchase

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United States Household debt (the money we, people, owe) is $16 trillion. Yes, trillion. The largest slice of this $16 trillion is mortgages, which is the outstanding debt on our homes and totals about $11 trillion.

Managed correctly a home becomes a valuable asset. Managed incorrectly it becomes a BIG liability. Buy a hammer, and a home you can afford. Get your DIY on!

Consider this, you want a house with hardwood floors, but can only find houses in your budget range that had carpet? Guess what – DIY TikTok has gotcha covered!

Goal 4: Understand the Opportunity Cost of College

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Compare not just the colleges you are interested in, but:

  1. The cost to attend
  2. The total amount of grants and scholarships
  3. Your needed Private vs Federal loans
  4. The return on your investment (ROI). Ask, is the career you are considering worth the cost you are paying?

“I was more worried about not getting into college than I was about how to pay for it.”

If you’re paying attention to the news lately, you’d know President Joe Biden just gave some borrowers financial relief of up to $20,000. While this is certainly a step in the right direction, loan forgiveness is not a guarantee and should not be taken into account when considering if/which college is the right option for you.

Goal 5: Understand the Opportunity Cost of Not Paying Off Your Credit Card On Time

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If you want to go through life with an anchor pulling you away from your financial dreams, this is the way to do it. Did we scare you? Good! Credit card debt is one of the most dangerous types of debt you can have. If you don’t pay your credit card on time, not only does your credit score decline (which will prevent you from being able to make important future purchases) but you also will accrue interest, and ultimately owe even more than you bargained for.

Credit card debt is painful, and hard to get rid of. Avoid this trap by paying off your credit card IN FULL each month. Having a credit card does not mean having free money. Make sure to only make purchases on your credit card that you can afford (aka you alternatively could pay for it on your debit). A credit card can be used to your advantage, as it is possible to earn rewards such as cash back or airline credits, but only if used correctly.

Now that you have these five tips under your belt, you are one step closer to owning your financial future!

The Time For Economic Education is Now

Financial Decision Making

When it comes to teaching financial education in schools, the time is now, writes Troutwood CEO Gene Natali featured on Penn Live. 

“This spring, 130,000 Pennsylvania students will graduate high school, and the vast majority of these students will have never taken a personal finance class in school.

Of the Commonwealth’s 500 school districts, less than 50 require personal finance courses for graduation. That is why we need to pay House Bill 242, now under consideration in the state legislature.

According to Next Gen Personal Finance’s 2021 State of Financial Education Report, only 1 in 7 Pennsylvania high school students is guaranteed to take a personal finance course before they graduate.

In 2018, the Financial Industry Regulatory Authority (FINRA) presented the results of a National Financial Capability Study. In Pennsylvania, 67 percent failed to answer more than 3 of 5 basic financial literacy questions correctly.”

Read Gene’s piece in its entirety on Penn Live

Long-term financial goals are an important part of financial planning.

How Do I Set A Financial Goal?

Financial Decision Making

Short Answer: Long-term financial goals balance planning and setting attainable savings goals.

Setting a financial goal is only the first step in achieving it. Long-term financial goals require follow-up, planning, and patience to achieve them.

When it comes to following through, a whopping 92% of people don’t meet the goals they set out to achieve. What can you learn from the 8%? The importance of smart goal setting, especially when meeting financial goals.

No matter short term vs. long term goals, ask these questions to make meeting your money goals easier.


It always starts with why, even when it comes to long-term financial goals. Why are you saving this money?  

Knowing “why” is important because it can motivate you to follow the goal. If the reason was simply “to save money,” you might have a more challenging time visualizing success when the going gets tough. 

There’s no right way to answer the why. It could be anything from saving up for your dream vacation to meeting your goal to retire by 60. So, when you say no to an impulsive purchase or spendy dinner out, you have the image of your vacation or early retirement in mind as motivation. 


Is your financial goal short-term or long-term? 

If you’re saving for a vacation in a few months, that’s a short-term goal (anything from one to two years). Whereas saving for a home down-payment might be more of a long-term financial goal (more than two years out). 

Having a timeline in place gives you space to work backward. Once you know where it ends, you can start breaking your goal into smaller milestones, creating a pathway to savings. 

How Much?

Hand in hand with when is “how much”? Determine how much you want to save. Most people find it helpful to save in terms of tangible things: A vacation, a car, a down-payment on a home.

Now that you have when and how much, you can break down the goal. 

For example, let’s say you want to save $2,500 for an upcoming vacation in 6 months. $2,500 as a lump sum can be intimidating, but when you break it down into six months, that’s $416 each month. If you want to break savings goals down even further, you could aim to save $85 a week, putting you on track to save over $2,500 at the end of six months.  

Savings milestones might coincide with payday. What is a comfortable frequency and method to contribute to your goal? Do you get paid weekly or bi-weekly? Is it easier to contribute to your goal right after all of your bills are paid? Choose a method and frequency that you can stick to.
Long-term financial goals have the benefit of time and use that time wisely. Break down big goals into manageable money milestones.


With a timeline and goal in mind, now comes the how. Take the example above, saving for a $2,500 vacation. Can you afford $85 in your budget each week to set aside for the goal? $416 a month? 

Meeting those goals may require a deep dive into your budget. How can you find that money in your budget to make the goal?

  • Decide if there are any concessions you can make each week to help you reach your goal faster. Could you sacrifice a streaming service?
  • Look ahead to any abnormal cash flows and plan: Do you get an annual bonus at work? Expecting a tax return? 
  • Can you institute no-spend days where you pocket the cash you would’ve spent and put it towards your savings goal?
  • Sometimes, the only way to meet a savings goal is to make more. Are you due for a promotion? Would you consider taking on a side hustle?
  • Can you cut back on unnecessary spending? That could mean fewer shopping trips or more cooking at home.

Revisit Your Goals

You may find it hard or even impossible to meet the goals you set, and that’s understandable. You may need to start with a more straightforward goal. Otherwise, you’re setting yourself up for failure from the jump. Better to meet (and possibly exceed) a goal than being discouraged by falling short. 

While a reach goal can be aspirational, a goal has to be attainable. Otherwise, you’ll never meet it. That might mean vacationing on a budget or starting smaller with your savings and retirement goals.

Many fail to realize that most people fail at their goals because they were never set up to achieve them. You can’t just decide on a goal then expect it to happen magically. 

Breaking financial goals into smaller milestones means a better chance to achieve them. They become less intimidating when you chip away at them slowly over time. 

At first, it may feel like you’re being easy on yourself. Don’t let a smaller goal discourage you, and it just means you can reach it even faster and set your next goal a little higher.

Extra Credit

How do I know how much to save for something like retirement?

There are plenty of retirement savings calculators out there, but Troutwood can help you create a custom plan based on career, cost of living, and more. Retirement might seem like a far-off goal, but the sooner you start saving, the smaller each milestone. Retirement planning can be made more accessible with the help of employer 401(k) programs or tax-advantaged IRAs.

What are some long-term financial goals I can work towards? Mid-term? Short-term?

Understanding why you’re saving is a foundational part of financial goals. If you don’t have a reason in mind, consider these thought starters. 


  • Retirement
  • Downpayment for home
  • Wedding expenses
  • Childcare costs
  • Future educational costs


  • Downpayment for home
  • Car purchase
  • Sabbatical 
  • Student loans


  • Emergency savings
  • Deposit on an apartment
  • Debt repayment
  • Big-ticket item (TV, clothing, vacation)


when to start investing

Should I Be Investing or Saving?

Financial Decision Making, Investing, Spending & Saving

Short Answer: Or both? For short-term needs, you’ll want savings.  For long-term needs, you’ll want investments.  This is rarely an either/or decision, and with changing retirement plan types, it’s more important than ever that individuals understand how and when to start investing.

With apps, the power of the market is in the palm of your hand, making it easier than ever to invest. But, deciding how and when to start investing hinges on existing savings and whether you have “enough” to start investing.  

Establishing an emergency fund and savings is an important part of financial wellness. Without it, you could be forced to withdraw from retirement accounts, incurring hefty fees or penalties.

But, at what point do you know when to invest in the stock market? Read on to understand when to prioritize saving and investing.   

When to Keep Saving

Deciding when to keep saving will depend on a couple of factors. Here’s when you should consider saving over investing.

You have no emergency fund

Over half of Americans have less than three months’ savings in an emergency fund, reports Bankrate. If you don’t have emergency savings built up, you’re exposing yourself to risk. 

For example, say your car breaks down, you lose your job, or you have an unexpected medical expense. Without liquid savings on hand, you may end up racking up credit card or personal debt to cover costs. Alternatively, you could end up withdrawing from retirement accounts, incurring hefty fees to access the money early. 

Having emergency savings provides a cushion. When any kind of emergency arises, you don’t have to scramble to find money to cover the costs. 

When establishing an emergency fund, a good rule of thumb is saving at least three months of expenses. That means if you lost your income, you could pay for everything from housing to groceries with savings. 

If you don’t have an emergency fund, put aside cash every paycheck until you meet the three-month threshold. Bonus points if you can save up to six months of living expenses.

You have high-interest debt

If you have any high-interest debt, such as credit cards or a personal loan, consider paying this off before investing in the market. 

Why? Because the average stock market return over the last 100 years is 10%. If your debt carries a high-interest rate, say higher than 10%, you’d be losing money in the market in the form of interest charges on your credit card. 

If your high-interest debt compounds, you’re charged interest on your interest. That means debt can snowball, growing larger faster than you may anticipate.  Say, you have outstanding credit card debt with a 22% interest rate.  The money you are losing on interest outweighs any realistic investment return assumption. 

Paying off high-interest debt first will almost always yield a higher return than investments in the market. Plus, the relief of paying off debt can allow you to focus on other savings and investment goals.   

You’re saving for a big purchase

Debt paid off? Emergency savings in place? It might be time to start investing. 

If you’re planning on a large purchase in the future, such as saving for a downpayment or wedding, you might save a portion of your income set aside for investing. 

If your big purchase is three to five years down the line, consider keeping it in a high yield savings account instead of investing. This helps diminish risk. If you need the money in three years and the market is down, you may not have time to wait for it to rise, meaning you’ve lost money. 

If you can save for the purchase and invest simultaneously, it may be wise to do so. For example, you’re considering that big purchase in 3-10 years, and because of that, are comfortable taking on investment risk and waiting for the right time to make the purchase.  But, if your savings need is pressing and shorter-term in nature, you may prioritize more of your extra cash towards this goal instead of the stock market. 

When to Start Investing

Investing can be a great tool towards securing your financial future, but figuring out when to invest in the stock market will vary from person to person based on their financial goals. 
There are no set guidelines for when to invest, but consider these rules of thumb before jumping onto the latest investment app.

You have excess in your budget

If your budget is operating in a surplus each month, consider throwing the extra cash into retirement savings or another investment vehicle. While you’re at it, take a look at your overall budget. Are there places you could cut expenses, putting aside even more into investments?

You have a 401(k) match

Does your employer offer a 401(k) match or other retirement savings incentive? If you’re not participating in the program, you’re essentially leaving cash on the table. 

Taking advantage of a 401(k) match is essentially free money, as you only contribute a portion to your account, and your employer does the rest. 

If you’re not sure about 401(k) matching at your workplace, reach out to HR to learn more.

You’re starting a Roth IRA

If you have excess cash in your budget, but don’t have a 401(k) available to you, consider a Roth IRA. A Roth IRA is a retirement account with limited annual contributions. This can be a powerful tool for retirement savings, no matter your age or income, as it helps you save money tax-free for life. 

Even if your income is limited or low, putting away some extra cash in a Roth IRA can make a big difference down the line. 

You’re thinking long term

If you’ve satisfied short-term savings goals, it might be time to think about longer-term goals. If you’re exploring goals that are five-plus years out, such as retirement or future investments, it’s a good indicator you’re ready to spend more time in the market. 

One caveat of understanding when to invest in the stock market is liquidity. Once money goes into the market, it can be harder to pull it out.  The objective should be to “stay” in the stock market for long-term investors.  Troutwood’s Time Portal provides data on every career cycle since 1926, defined as concurrent 42-year periods.  Each period had unpredictable ups and downs but staying invested worked throughout all of them.

Am I Too Young to Start Investing?

There’s no perfect age at which to begin your investing journey, nor is there any age that is too young.  Warren Buffet famously started with $114 at the age of 11. We all move through life at different speeds, so while peers may be knee-deep into WallStreetBets, you might still be focusing on establishing an emergency fund, or taking that first step with a Roth IRA

While there’s no cut and dry rule of when to invest or at what age, generally, you should feel comfortable doing it once you:

  • Pay off high interest debt
  • Establish an emergency fund
  • Create a balanced mid-term savings goal

Keep in mind you may be able to balance satisfying some of these needs while starting an investment account. Just keep an eye on your budget to make sure you have enough left over for day-to-day needs. 

If you’re just starting your savings or investing journey, check out Troutwood’s newsletter to learn more straight from your inbox. 

Extra Credit

What is liquidity?

How easy is it to convert this asset into cash? That’s the metric by which liquidity is calculated. For example, cash or a savings account is high-liquidity—you probably just need to transfer it to an account to be used. 

On the other hand, physical assets like homes are less liquid. Assets need to be sold, and oftentimes they’re taxed when they leave the investment account. 

What is 401(k) matching? 

401(k) is a benefit offered by some employers. The terms will vary, but an example of a 401(k) match would be “matching 100% of your contributions, up to 3%.” That means the employer will match your pre-tax 401(k) contributions 1:1 until you reach 3% of your total compensation package. 

Example:  A $50,000 salary with a 3% company match.  This means, if the employee (you) contributes 3% of $50,000, or $1,500, your employer will contribute a matching $1,500, making the employee’s (yours) total contribution for the year $3,000.

Matching can be an excellent way to grow your retirement savings without upping contributions, and that’s why it’s often referred to as “free money.”

“I am reading ‘The Big Short’ and, I need help understanding home equity. What is the difference between a first and second mortgage?”

Financial Decision Making

Short Answer: Home equity is the difference between your home’s appraised value and what you still owe on a mortgage. Second mortgages are higher interest but good for emergency situations.

Home Equity = The % of your home that you own versus the purchase price.  For example, if you bought a home for $200,000, and had paid off $100,000 of the mortgage (principal component) you would have equity (i.e. an asset of $100,000).  This does not take into consideration price movements of a home.  Continuing this example, if you sell your $200,000 home for $215,000, you will pocket $115,000 and the remaining $100,000 will go to the bank to finish paying off your mortgage.  Remember, you don’t own your home until your mortgage balance = $0. 

2nd mortgages = In the context of a “home equity loan,” i.e. your example, you could get a home equity loan for some percentage of the equity you have in the home would not be for all of it. The interest rate on this tends to be higher than a mortgage, but functionally the same (except that now you have two mortgages to pay off).  it is certainly a useful tool to be aware of, but most likely an option for emergencies.

Finn’s Fact: A second mortgage interest rate is higher than a first mortgage, but still substantially lower than a personal bank loan or credit card payment. Upfront closing costs must still be covered in second mortgage situations.

How do I avoid bank fees?

Financial Decision Making, Spending & Saving

Short Answer: Use cash whenever possible

It’s no secret that commercial banks make millions each year from customer fees. Often times, these fees can come at inopportune times, like, say, when you overdraft your account by buying a $5 coffee. So now, you’re not only broke, but you also owe an extra $37 for that overdraft! Or, you’re paying 24% interest on the supposed “great deal” you scored by putting something on credit.  Here are some tips and tricks to help you keep your hard-earned money.

  1. Keep a separate checking account that serves as overdraft protection. Choose a checking account that waives fees for monthly deposits. Then, set up a $10, $20, or $50 automatic transfer into that account each month. You can then up overdraft protection to your main account from your “backup” account.
  2.  Use cash or a pre-paid debit card. Other than bills or planned budgetary things like groceries or gas, carry cash! You’ll always know exactly how much you have left. Studies by the Consumer Financial Protection Bureau found that people are more likely to overdraft a checking account with a purchase below $20. The same study also found that study participants spent less money overall when they used cash for all purchases less than $20.
  3. If you can’t pay it in cash, don’t buy it. Even if you intend to charge it, if you cannot pay it off in cash right then and there, bypass the credit card altogether.
  4. Keep one or two credit cards only, use them periodically at times that you can pay them off right away. This keeps them active and your credit score high while eliminating any chance of paying interest. Retailers spend millions on advertising to condition us into thinking that we can “buy it now, pay it later” on things we don’t need. It’s best to keep credit cards on hand for surprise purchases like a car repair or vet bill.

Finn’s Fact:  The Consumer Financial Protection Bureau found that people were willing to spend twice as much on an item they paid for with a credit card vs cash.

What’s the difference between Deferment vs. Forbearance for student loans and mortgages?

Financial Decision Making

Short answer: If you qualify, deferment is a better option, but neither is a good long-term solution.

You might find yourself in a situation where you cannot make a payment on a student loan or a mortgage. You have options, but its important to understand how each option can affect your finances long term. First, lets understand what each term means:

Deferment: Generally speaking, with student loans, deferment means you are postponing any payments for a later date. In most instances of student loans, interest rates are 0% during the deferment period. Deferment on a credit card can mean that, while interest is not owed during the deferment, it can still accrue and might be owed at the time the deferment is over.

Forbearance: A forbearance option is usually the last chance before a default or foreclosure. The literal meaning is “holding back.” In the case of student loans or mortgages, you may have the option to pay a lower amount. This is sometimes the only option if you do not qualify for deferment.

While neither is recommended, if you are in a difficult financial situation, these are two options that can provide some relief.

Finn’s Fact:
Most student loans start accruing interest once the loan is disbursed, with the exception of federal subsidy loans (where the government pays the interest at first.) You can start to make an impact on your loans while in school by paying the interest on any loans you take out. It’s a small way to impact your long-term outstanding balance.