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


person putting coin in a piggy bank
Photo by Joslyn Pickens on

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

shallow focus photography of blue alpine car
Photo by ALEXGTACAR on

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

black handled key on key hole
Photo by PhotoMIX Company on

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

newly graduated people wearing black academy gowns throwing hats up in the air
Photo by Pixabay on

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

man in blue dress shirt wearing black framed eyeglasses
Photo by Mikhail Nilov on

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!

How Does Afterpay Work?

Spending & Saving

Short Answer: “Buy Now, Pay Later” tools like Klarna and Afterpay work if you’re in a pinch and are worth considering when it comes to emergency preparedness.

If you’ve made an online purchase lately, you might’ve noticed the many “Buy Now, Pay Later” options beckoning you at check out. Tools like Afterpay, Klarna, Affirm, Zip, Humm, LatitutePay, and many more offer purchases in installments, without interest.

“Buy Now, Pay Later” services can be a tool in your belt but consider proceeding with caution. Think about it like a day at the beach—if there’s a high rip tide warning, you’re unlikely to go out deep in the water. Better to stay ankle deep and safe than end up in over your head. You can go in but proceed with caution.

The appeal of breaking down a large purchase into smaller installments is enticing, but how does Afterpay work, and how do these services impact finances?

The Rise of “Buy Now, Pay Later”

The idea of “Buy Now, Pay Later” (BNPL) has been around almost as long as money itself. From paying in installments or point of sale installment loans to layaway and zero-interest credit cards, BNPL is ushering these transactions into the 2020s with easy-to-use technology that secures a payment plan for customers in a few simple taps at check out.

Through integrating installment plans with technology, BNPL has experienced a meteoric rise. Plus, with the added benefit of low to no interest rates on purchases, adoption has been steep. A 2021 survey revealed that 39% of online shoppers had tried the service.

How Does Afterpay Work?

Nearly half of all online shoppers have used BNPL, but how does Afterpay work? Most BNPL programs follow an almost identical process.

  • Participating BNPL shops prompt you to use its service (Klarna, Affirm, Afterpay, etc.) at checkout.
  • If you’re successfully approved for the service, you make a small down payment on the product, then agree to pay the rest in a series of monthly payments. The downpayment is often 25% of the total price.
  • For more expensive purchases (think in the $1,000s), BNPL typically offers a 30-day interest-free period, then financing with an APR between 0 and 30%. After the interest-free period, you could be charged upwards of 30% interest on the payments. This is when reading the fine print and disclosures is essential.
  • Once you enter your banking information, the BNPL provider can make automatic charges to your account over the life of the payment. Similarly, you can manually make monthly payments via the app or online.

In many instances, getting approved for BNPL is easier for people with low or no credit scores, as it only uses a soft credit check. The approval process takes a matter of moments. However, it’s important to read over the terms of the agreement, which can include information on rates, late fees, and other possible fees.

Does Afterpay Build Credit?

If you’re hoping on-time payments on your Affirm or Afterpay installments will help build credit, similar to a credit card, then you may be out of luck.

On-time and completed BNPL purchases won’t have an impact on your credit. However, late or missed BNPL payments are reported to the credit bureaus and can negatively impact your credit score, and that’s on top of the fee the BNPL provider will charge.

Pros and Cons of “Buy Now, Pay Later”

Now that we’ve answered the question of how Afterpay works, let’s explore its benefits and drawbacks. Klarna, Affirm, Afterpay, and many competitors seem easy and enticing. However, their positives do come with a fair share of negatives.


  • Simple approval process. Unlike getting approved for a credit card, BNPL takes a few clicks, making it easy and fast to figure out an installment plan. 
  • Soft credit check. The approval process comes with a soft credit check, which won’t impact your credit score like a hard credit check would. 
  • Doesn’t require good credit. If you’re a credit newbie or have a low credit score, getting approved for a BNPL program could be easier than a credit card.
  • Breaking a big purchase into smaller installments. If you need to make a big purchase, like furniture or electronics, breaking it down into smaller installments can make affording it easier.
  • Low or no interest. Most BNPL plans offer low or no interest at checkout if the purchase is small enough. However, check the service terms and conditions, as interest rates may be subject to change at any time.


  • Doesn’t boost your credit score. While it’s easy to get approved, BNPL programs don’t help your credit score, even if you make on-time or early payments.
  • Can harm credit score. Missed and late payments can hurt your credit score, which can be hard for those with already low credit scores.
  • Returns are complicated. If you choose to return an item purchased through a BNPL plan, you may be required to pay out the duration of the installments before receiving a refund. Check the fine print on a purchase, or reserve BNPL for items you know you want.
  • Fees for late or missed payments. BNPL can come with fees if you miss or make a late payment on a purchase.
  • Leads to overspending. A survey showed 55% of shoppers who used BNPL admitted spending more than they usually would with other payment methods.  

When Should I Use “Buy Now, Pay Later” Tools?

Traditional budgeting says, “only purchase what you already have the money for.” BNPL turns that idea on its head, asking customers to buy, then plug monthly installments into their budget. 

For those with a firm grasp on how their money comes and goes, purchasing an item using BNPL may be a breeze. What’s $25 a month for a couple of months?

However, the risk could come with taking on multiple BNPL payments at once. As BNPL shoppers are more likely to overpay with this method, you could end up with an unmanageable amount of monthly payments, leading to an overextended budget, stress, and late fees.

Because BNPL can snowball, it may be best used when:

  • You already have the money set aside but don’t want to spend it all at once
  • Have a budget in place accounting for BNPL payments

Afterpay works for a select number of scenarios. Buy Now, Pay Later may be tempting, but it’s worth asking, “Why am I using this?” If it’s to spend more without a plan in place, even interest-free payments could spell issues down the line. 

Extra Credit

How are services like Klarna, Afterpay, and Affirm different from loans?

BNPL plans aren’t traditional loans and don’t require a hard credit inquiry. However, BNPL plans can come with interest rates, similar to conventional loans. Read the fine print to understand the terms of your BNPL plan.

How do these “Buy Now, Pay Later” tools make money if they don’t charge interest?

BNPL services charge transaction fees to the retailer of between 2 to 5%. If you’re shopping at a small business, using BNPL might have an impact on their bottom line. 

How is “Buy Now, Pay Later” different from a credit card?

Credit cards are a revolving line of credit, which means as you pay the balance down, you can charge more. BNPL plans are one-time loans, and once they’re paid down, you can’t get credit back.

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 started a new job and my employer mentioned a 401(k) as part of my benefits. Do I need a 401(k)?”

Employment & Income, Spending & Saving

Short Answer: Yes, you need to start a 401(k) now.

There’s no “except” or “if” on this one, you should immediately start a 401(k) at any job that offers it. It’s free money. Yes, FREE MONEY. We can explain. In most instances, when you contribute to your 401(k), your employer also makes a contribution. If you’re thinking “I have plenty of time to save later.” Stop right there. You don’t.

Here’s the fancy math:

If you make $35,000 a year, and you get paid twice a month, before taxes, your paycheck is roughly $1,400 every other week. (401k contributions come out pre-tax, and also account for a tax deduction at the end of the year.)
3% of $2,800 is $84. That’s $84/month that you are investing in your future. After 5 years, that’s about $5,000 saved. And we haven’t even counted compounded investing either!

Let’s say you are cheap (we don’t judge!) and only want to put away 1%.
That’s still $29/month that you are investing in your future.

$29 = two Chik-Fil-A meals.
$84 = the cost of an unplanned Target trip. (IYKYK)

Can you afford it? Yes!
Do you need it? Absolutely.
It doesn’t matter how much you can invest, what matters is that you get started. Once you start a new job, you should check your onboarding pamphlet or email about retirement plans, or, reach out to your HR representative and ask.

Oh and guess what? That part above about employers making contributions? Well, that $29 or $84 you’re squirreling away… your employer is putting away the same amount for you as well. Remember that $5,000 above that you’ll have after 5 years? Well, with an employer match, its actually $10,000. (See? Free money, we told you.)

Another fun fact about a retirement savings account: when purchasing a large item, such as a home, a retirement account is seen as an asset on your balance sheet (yes, you have a balance sheet now, you adult, you!) and can help boost your ability to qualify for a lower interest rate or higher loan amount!

Click here to see our “Finglish” definition of a 401k!

Finn’s Fact:  A 401(k) or 403(b) will go with you if you leave one job or company and move to another. It always belongs to you!

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.