When managing personal finances, it’s important to not lose sight of the basics.   Without a sound foundation and an organized approach, it can be easy to get distracted by so-called “get-rich” schemes or let spending get out of control.   

Everyone – no matter how experienced or not – no matter how wealthy or not —  will benefit from this step-by-step approach, building sophistication one step at a time.  HENRYs,(High Earners Not Rich Yet), retirees, college graduates, young parents and single parent households are just some of the key groups who will benefit.

In this article we will talk about three key ingredients to keep you on track.  

The three basic legs to maintain control of your personal finances are:

  1. Building a realistic budget
  2. Preparing to pay taxes and plan ahead
  3. Managing credit smartly including understanding the best sources for credit; credit cards, credit scores and mortgages


There are two categories of expenses in a budget:  non-discretionary and discretionary.

  • Non-discretionary items include required spending such as rent, food, transportation, medical, clothing, schooling, taxes and so on.
  • Discretionary spending includes the more fun aspects of life such as dining out, entertainment, gifts, memberships, vacations.

As basic as it sounds, these need to be monitored and tracked monthly in an organized way – either on a spreadsheet, or with the use of online budget planners such as Quicken, QuickBooks, Nerd Wallet or Ramsey Solutions.  Not only will this enable a fair and true understanding of how your money is being spent, but it will also add discipline to your spending habits.   

Building a budget and following it is the first step in goal planning and saving – be it for a house, retirement, a vacation or education.  Realistic budgeting is the guidepost that helps you decide if your lifestyle is in sync with your income – and your goals.  

It also provides the control to keep you from living paycheck to paycheck as well as the peace of mind that you will be able to survive a downturn such as the one we have just experienced in 2020 and 2021.   More than 55% of Americans live paycheck-to-paycheck and have no savings with 19% of those American accruing monthly debt.  The rule of thumb is to be able to have an emergency fund to cover 6 months of non-discretionary expenses.  Savings is the net amount of cash you have left over after your total spend (including taxes).

Accurate budgeting is not just for those on a lower income or those just starting out.  Many high earners overlook this step because they earn enough to easily cover their overhead.  But, the fact is that even high earners should take a disciplined look at income vs outflow to optimize savings opportunities.   Tax laws are constantly changing, investment opportunities need to be watched and it’s easy to let discretionary spending grow out-of-control.

What if you are following a budget and manage to put money aside for savings every month?  Do you have a free pass to spend until the checking or debit card runs to a remaining balance of zero?  Don’t be fooled by a false sense of security.   You need to constantly evaluate how much you are setting aside for savings – keeping an eye on the balance between income/spending and saving.  Winning the lottery or getting a large windfall like an inheritance doesn’t mean that you can spend freely.  This is the time to reevaluate  your savings options.   Let your budget keep you informed and guide you in the adjustments that make sense.


It has been said that there are two absolutes in life:  death and taxes.  Taxes are a fact of life and must be planned for.  They are a non-discretionary budget item.

For those who are employed, most employers will set up a paycheck withholding for taxes.  But how often do you get to the year-end only to find out that you owe additional funds.  Knowing a little bit more than simple withholding can improve minimizing taxes.  Enlist the aid of TurboTax, or other filing services to ensure you stay on track of projections.  These services allow you to experiment with different scenarios including deductions, new dependents school credits on taxes, etc. to maximize your “disposable” income – the income left after taxes.

Small business owners especially can benefit from this sort of tax planning to manage payrolls and employee withholding, social security payments and the other required taxable. Timely payments help avoid unnecessary penalties and interest from the IRS.  

Bottom line, a knowledgeable approach to taxes will provide control and potentially help you to maximize disposable income.


Managing and understanding credit options is the third leg in the stool to financial stability.  The availability of information about your credit worthiness has become instantaneous.  

Credit cards are the most universal and readily available type of credit.  However, there are many different types of credit cards and user beware of the fine print.  Some cards must be paid off monthly or you risk extraordinarily high APRs, others have credit ceilings, many others come with rewards that are worth investigating.  Credit card fees are not for the faint of heart so know before you use the card what the terms are.

Judicious use of credit cards can be useful to establish or increase your credit score or FICO.  Credit scores will regulate your credit worthiness, so aim for the highest score possible.  Timely credit card payments are a must for a good credit score. Other factors that influence your credit score include the number of credit cards you have, the amount you owe on each card, delinquencies, legal actions and other offenses.  Your FICO score is readily available through many banks or other credit bureaus.

Even smart people can get trapped by credit cards.  I’ve known highly paid professionals who became so over-leveraged on their credit cards paying off things like school loans and day-to-day living expenses that they were unable to borrow for a mortgage. Falling behind on payments and paying high interest rates make it difficult to keep a good credit score and pay off the cards.

Credit cards are not meant to be considered as more than temporary substitutes for cash.  Consider looking into other sources of credit for large purchases like a new car whether it be a car loan or a lease.  Credit cards can be predatory or demonstrate good financial management.  It’s all about good planning and management.

Mortgages are another form of credit typically used by homeowners.  The home is the collateral for the lender. The purchase of a home, obtaining a mortgage to do so, relies on the buyer to make the cash flow requirements to meet monthly payments.  Banks will generally lend up to 80 percent of the home value.

Today’s mortgage arena relies heavily on your credit score, balance sheet, cash flow and even zip code in determining your borrowing power and ability to get a mortgage.  Availability for mortgage lending can change as conditions in financial markets change, and there can be a chance to refinance or modify an existing mortgage to take advantage of lower rates.  In the early 80s mortgage interest rates were as high as 13 percent.  Today they are near 2.75 – 3.5 percent.  It is often worth using the ability to prepay or modify a mortgage to reduce interest or to lower the principal amount.

There are internet access programs such as RocketReach or Mortgage Calculator that can help you keep tabs on what mortgage you can quality for and what set of payments you would need to make and how long it will take to amortize the costs to refinance before you benefit from the lower monthly payments.  These are good for testing your borrowing power. 

Take these three steps and feel the confidence of adding certainty to your future. 


Tom Kutzen