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Creating an expense management strategy

 Learn 5 best practices for balancing your income, savings and spending.

Whatever stage of life you’re in, managing expenses is key to your financial well-being. As your income and lifestyle changes over time, so does your spending. And runaway expenses and unnecessary spending can hinder you from reaching your financial goals.

An Ameriprise financial advisor will help you ensure your expenses, income and savings align with your broader financial goals.

Here’s how to create an expense management strategy that can work for you:

In this article:


1. Identify your net income and understand your spending

Spending less than you earn is a foundational financial principle, so having a clear picture of your net income and spending habits is where to start.

Calculating your net income

Net income is the gross amount of money you take home each month after taxes, employer-sponsored retirement plan contributions and other deductions. Here’s how to find and calculate it:

  • If you’re a W-2 employee, you can find this amount by looking at your gross salary on your paycheck.
  • If your income varies monthly, use the lower range as the baseline for your calculations.
  • If you’re self-employed or have a second job, subtract any out-of-pocket expenses that will affect your after-tax income, such as taxes or regular business expenditures.

Understanding your spending habits

Start by tracking your expenses for a month or two (or more) — consider a budget tracking app or logging your purchases manually in a spreadsheet. If you use a debit or credit card for household spending, check your online account – some credit card issuers will categorize your expenses for you or let you download your transactions in a spreadsheet.

As you audit your costs, here are a few categories and different lenses to think about your spending:

  • Essential: Recurring expenses that support your basic “needs.”
  • Lifestyle:  Expenses that enhance your life (i.e., are dispensable to your day-to-day life) — “wants.”
  • Fixed: Expenses that are approximately the same each month.
  • Variable: Expenses that may change from month to month or are an annual expense such as insurance premiums.
  • Savings: The amount of money you set aside for your cash reserve, retirement and other goals.

Advice Spotlight

Near retirement? Start tracking your expenses

Tracking your expenses in the years before retirement can help you determine how much income you need and want in retirement. This exercise will help you understand how you, in partnership with your financial advisor, can recreate your paycheck in retirement through fixed income sources and a distribution plan from your assets.

2. Find an expense management strategy that works for you

Most strategies for managing expenses have similar objectives, but each approach has different tactics. The key is to find an approach you can stick with. Many of these methods can be implemented with the help of digital budgeting apps and tools.

Here are a few common strategies:


How it works
Who it’s for
How it’s different than other methods
 50/30/20 method

Each month, you allocate your after-tax income into three buckets:

  1. 50%: Needs (housing, groceries, utilities, minimum debt payments) 
  2. 30%: "Wants" (gym memberships, streaming subscriptions, eating out, vacations)
  3. 20%: Savings (cash reserve, retirement)

Those who are looking for a simple way to balance spending and savings priorities.

An expense management strategy that can be used on its own or as a starting point for other budgeting approaches.

  “Pay yourself     first” strategy
  1. Decide how much of your income you want to save each month.
  2. “Pay yourself first” by automatically routing a portion of each paycheck into your savings or retirement funds.
  3. Pay for essential expenses.
  4. Whatever is left over to cover discretionary spending. 

Those looking to reach certain savings goals and reducing their spending on non-essential items.

Emphasizes savings rather than expenses.

 Envelope system
  1. Set a limit for each spending category.
  2. Fill envelopes with the allotted amount. This can also be done virtually.
  3. Use the money from each category to pay for monthly expenses.
  4. Once that money is gone, you can’t spend any more on that category for the month – or you need to reallocate funds from another category.

Those prone to overspending or   impulse purchasing.

Draws attention to excessive spending on any one item or category.

 Zero-based   approach
  1. At the start of the month, allocate every single dollar of income toward a specific purpose and various categories, including short- and long-term savings and debt payments.
  2. Track and categorize each expense throughout the month.
  3. By the month’s end, subtract your expenditures from your income. The total should be zero.

 Those looking to understand and   control their spending habits.

Offers a highly detailed look at where your money goes each month.


Whichever plan (or combination of plans) you use, leave room for unexpected expenses. Life happens and it’s impossible to account for every expense you will encounter. A buffer will help you deal with unforeseen expenses without discouraging you or disrupting your plans.

3. Make adjustments

Once you’ve chosen and implemented a strategy, make changes based on your spending habits and financial priorities.

If you’re looking to reduce expenses, start with those that aren’t necessary (e.g., lifestyle expenses). Spending on restaurants, subscription services and other discretionary goods can add up.

You could also seek savings in variable expenses, even if they fall under necessary spending. For example, groceries are a necessary variable expense, but there are ways to minimize your spending — whether that be through buying in bulk, changing grocers or joining a rewards program that offers savings.

4. Take advantage of digital tools

Digital tools can make it easier to manage your expenses by tracking spending, paying bills and automating savings:

  • Digital dashboards, budgeting apps and automated tools can help simplify the process of tracking your expenses.
    • Total View, an account aggregation tool located in the secure site on, can help you and your financial advisor gain a more complete understanding of your overall financial picture. Connect accounts from other financial institutions, add physical assets such as homes or jewelry and view them all in one secure place.
  • Online bill pay can help you stay on top of essential recurring expenses.
  • Automatic bank transfers allow you to move money from one bank account to another at regular intervals to help meet your savings goals.

5. Regularly review your plan

Your income and spending are likely to change over time, as will your priorities. Make sure those changes are reflected in your expense management by reviewing your plan regularly and adjusting accordingly.

Also revisit what you save in connection with your expense review. Where do you save money when you have more after-tax income than you need to cover expenses Can you save more toward your goals?

Consider tracking your progress with your financial advisor to help make sure your spending and savings continue to serve your financial goals.

How might my expenses change when I reach retirement? How much should I earmark toward my savings and investments each month? Where should I allocate any excess savings in my budget?

When you’re ready to reach out to an Ameriprise financial advisor for a complimentary initial consultation, consider bringing these questions to your meeting.

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We’re here to help keep you on track

Having an accurate view of your household spending is critical to your overall financial strategy. It helps ensure your Ameriprise financial advisor’s recommendations for savings, investment and withdrawal strategies align with your short-, medium- and long- term goals.

Stay on track to your financial goals with the help of an Ameriprise financial advisor.

Or, request an appointment online to speak with an advisor.


At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's. 

If you know someone who could benefit from a conversation, please refer me.

Background and qualification information is available at FINRA's BrokerCheck website.

Ameriprise Financial cannot guarantee future financial results.
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