The world’s easiest budget

Posted by on Feb 6, 2012 in Finance | 0 comments

The world’s easiest budget

There are 2 simple rules to do a simple budget:

  1. You can’t spend more than you earn – carrying a balance on a credit card is not allowed.
  2. Money must go to the budget categories as soon you get paid.

The way it works: Rather than having 10-20 different categories of items to be budgeted for you only focus on the 1-3 most important ones and let the rest of the chips fall where they will. So, to do this you take your paycheck of say $1000 and right off the top you put the money to your main priorities.

For many people this is tithing to their church, retirement savings, college savings for children, etc… A sample of this would be: $1000 (paycheck) -$100 (tithe) -$100 (retirement savings) = $800 (for the rest of the bills and everything else) It is absolutely critical that the money gets taken out FIRST for these few budgeted items. If not, I can almost guarantee that the full amount will not make it as intended. I highly recommend making this process automatic by using direct deposit or some other form of automatic withdrawal. There is just something about human nature that has a hard time staying consistent with things like this. Why do you think the U.S. government takes our taxes directly out of our paycheck, rather than coming to collect the full sum at the end of the year? It is the same principle – use it to your advantage.

Easy budget, but not very efficient I think this budget is perfect for people who don’t want to budget. It is simple, doesn’t take up much time, and will help you reach some savings goals. That said, it is still inefficient and leaves the door wide open for inefficient and foolish spending. I think it should be considered the “lazy man’s budget” – and you are not LAZY, you are willing to work to get your finances in order!! I know this because you are still reading. So, since you are NOT lazy and are hungry for more of a challenge, let’s look at how the pros budget.

The money saving budgeting method Yes, this method takes a little bit more time and energy, but it also will provide you will long-term financial benefits if followed. To do this we are just going to expand on the lazy man’s budget mentioned above. Rather than having just 1-3 categories of items budgeted for, we are going to create as many as we need to put a limit on our spending in all areas. You can use the mentioned budget spreadsheet as a guide for tracking your progress. Try to account for every possible expense that you could run into. You will never be able to budget for every possible scenario, but the goal is to minimize surprise expenses. Inevitably, there will still be surprises from time to time – so I suggest creating a category for these surprises (or you can just use your emergency fund).

How to stick with your budget The almost sure-fire way to make a budget that fails is to NOT budget for any fun stuff. I wrote about how budgeting should be fun and it is a necessary ingredient for success. You need to budget for clothing, entertainment, going out to dinner, or whatever else it is you love to do! The key is to do it in moderation and to set limits and abide by them. The amazing thing is that by budgeting for fun stuff, it actually liberates you to spend money on these items. When you have money budgeted each month to buy clothes, the money is now sitting there waiting to be used for that assigned purpose. Suddenly you can go clothes shopping without feeling guilty!! This is how budgeting truly becomes fun, when you have money sitting in the bank waiting to be spent. Or, even better: if you start budgeting for vacation and after a little while you have hundreds of dollars begging to be spent on a vacation!! You go on your trip and come back home and don’t owe any money to a credit card company – now that is how a budget becomes fun and what helps you stick with it!!

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