The word simple doesn’t seem like it should go together with budgeting. But if there’s one thing I’ve learned over the last decade, simple should be the one descriptor we should aim for in our budgeting.
The following are five simple ideas/techniques/thoughts to help you either get started budgeting or simplify what you’re already doing.
Don’t aim for perfection. If you have more than 10 budget categories. If you’re constantly worried about overspending. If you haven’t left any slack in your current plan. Then you’re going to be very frustrated with your budget. Throw out everything and start with only your personal (i.e. non-essential) spending like eating out, mall visits, and other categories that are immediately within your control.
The idea is to start tracking where your dollars are going and adjust accordingly. Strive to account for 80% of your overall spending. Then move on to more onerous categories.
Don’t expect balance. If you’re using any type of personal accounting software, homegrown spreadsheets included, don’t expect the different amounts to match exactly with your bank balance. It will always be out of sync.
As long as you’re living within your budget categories and your balances are within a $100 of each other, you shouldn’t be concerned. Trying to balance two disparate systems every time you “do” your finances is an exercise in futility.
Focus on the biggies. You aren’t in debt because you spend 3 extra cents on bananas at Wal-Mart. But you might be struggling if you’re having a hard time making a rent or car payment. You might have to downsize your house until your financial house is in order.
Can’t sell your house? Do what I did. Rent out your house and move to something smaller. I come out $400/mo ahead with this arrangement. Get realistic on reducing your large expenses. Then you can dive into the weeds with your other budget items.
Add up your absolutes. This is an interesting exercise because it forces you to examine budget areas you may have always considered a must pay. Do you have cable or satellite TV? What about a cell phone with a data plan? Gym membership or other automated payments?
Narrow down your budget to those items you absolutely must pay. Items that would have a profoundly negative impact if not paid including debt payments. Then see where you stand.
Save a small amount each month. Put aside a small amount every month. Maybe $10, $20, or $50 each paycheck. This is a purely psychological tactic. Watching your savings grow, even if small, is a huge morale booster.
Have you tried any of these ideas? Are you looking for ways to simplify? Let me know how you’ve created a budget that works for you.