You Need A Budget

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Before you can make an effective plan, you need to gather some information.  I’d argue the two most important bits are:

  1. How much money is coming in?
  2. How much money is going out?

Which means, with all due respect to Jesse Mecham: You need a budget.

Fortunately: Budgeting is really simple.

However: Budgeting is not easy.

I’m going to proceed assuming you are a typical couple in a married or committed relationship.  If you’re single, this all still applies.

The Simple Part

I recommend breaking your budget into the fewest number of categories you can.  If you don’t know where to start, you can borrow the ones I use:

FOOD:  All “smart” food purchases: groceries from the grocery store and the like.

FIXED:  All predictable expenses that don’t vary from month to month.  These might include: Rent, Utilities, Daycare

REQUIRED:  Any spending that you have to do, but it was unexpected.  Think: My kid broke his arm and had to go to the doctor.

GIVING:  Christmas and birthdays aren’t a surprise, so save a little bit for them all year long.  Likewise any charitable giving you do should be funded and deducted here.

CAR:  This category could be absorbed by the others, but a lot of financial difficulties arise around motor vehicles.  Regular car spending includes gas, insurance, and repairs that you should be actively saving for ahead of time.  Additionally, if you want to spend $20,000 on your next car in seven years, start saving an extra $240/month right away.

SAVINGS:  Any debt you’re servicing, like student loans and credit card interest, is included here.  Any time you make a contribution to a retirement account or emergency fund, deduct it from here.

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YOUR CASH:  Wants, not needs.  Want to go out for lunch?  Want to subscribe to HBO? Want to buy a wakeboat?  Anytime you buy something you didn’t need to buy, it has to come out of discretionary cash.

YOUR PARTNER’S CASH:  Does your partner go out for coffee all the time?  Are they frittering away your hard earned cash on beers with their friends?  Any “wants” they have come from their cash, and you don’t ever need to argue about it again.

And now, the Simple Part is:

Add every dollar you take home to the categories in your budget.

Subtract every dollar you spend from the categories in your budget.

The Hard Part

scale-diet-fat-health-53404.jpegJust like a diet, it doesn’t work if you cheat.  Unlike a diet, it also doesn’t work if your partner cheats.  You have to keep track of every dollar you spend.  You’ll get better at estimating categories, and you’ll make adjustments as you go.  But if you take a break from your budget, you don’t have a plan — you have a dream.  It takes a couple minutes a day at most, and it will change your life.

Recommendations

For years we just used a pen and paper and stuck our budget to our fridge.  Eventually I used a spreadsheet that was easy enough to update and roll over each month. Nowadays, we use the every dollar app (free version) because it’s so quick and easy for us to stay synced up from our phones when we’re on the go.  If I buy a burger, I tap-tap-tap to deduct it from my cash right on the spot.

If you want some help setting up a budget, feel free to contact me or ask questions in the comments below.

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