Don’t look now but your budget gap is showing. It’s the difference between what you think you spend and what you really spend. And it’s not a matter if you have one, just how large of one you have.
How do you close your budget gap? By becoming a spending awareness marauder. If you’ve never created a budget, or if you’re tired of your old budgeting system, the easiest way to get started is to create a minimalist money map.
A minimalist money map is a simple way to take your spending temperature and take corrective action when necessary. Here’s how to set one up.
Find your monthly net income. I don’t care about your health insurance, 401K, or comic book deductions. Unless you absolutely need to track your deductions (for tax purposes or otherwise), don’t.
I’ve seen too many budget spreadsheets track every nickel on a gross income basis. That’s time spent tracking something you’ll never see. Only include the actual amount deposited into your bank account or cashed each month.
List your required expenses. This includes your housing/rent, utilities, and car/commuting expenses. This does not include groceries, cell phone, or other miscellaneous expenses. Please don’t misunderstand me. Not including groceries as a required expense doesn’t mean you won’t eat. Groceries are a variable expense. That’s the purpose of this exercise, to plug variable expense leaks.
Allocate your income. Once you have your required expenses identified, allocate your income into each expense category until each is fully funded. This in itself can be an eye opening experience. There are three potential outcomes from this exercise two of which aren’t so good.
First, and best, scenario. All required expenses are fully funded and you have money left over – Great job! Reward yourself and move to the next step.
Second, not so good, scenario. All required expenses are fully funded but you don’t have money left over – This isn’t ideal since, well, you still have to eat. Reasons may include funding a non-mandatory expense or forgetting to include income.
Be honest with yourself. Is eating out for lunch everyday mandatory? Would it kill you to stop sending your clothes to the drycleaners for a few months?
And what about income? Do you get a big tax refund every year? Stop. That. Now. The government isn’t giving you new money. It’s simply returning money borrowed from you for a year at zero interest.
I know a lady who could easily gain an extra $600 per month if she would only adjust her W-4 withholdings. But she’s so accustomed to getting $8,000 back in April, that she we won’t do it. Yet, she complains about the squalid trailer she shares with her family.
Take it from someone who’s worked in or with the government for ten years. You’re not doing the government nor yourself any favors by paying extra into the tax system.
Third, and worst, scenario. All required expenses are not fully funded (you obviously don’t have money left over). This is a tough situation that will require tough decision making. Sell the car. Downsize to a smaller apartment or house.
Let’s assume all your bills are paid and you have money left over. That tidy little sum is what you’re going to use to buy everything else.
As I said before, groceries are discretionary but only to the point of getting a clear picture of how much you spend each month.
Using this method helped me knockout needless excursions to the bookstore. It also revealed that my Saturday morning run to the grocery store was adding an additional $90 to our monthly grocery budget. Money saved is truly money earned.
How about you? Do you think a minimalist budget could steer you back into the black?