Budgeting Doesn’t Have to be Spooky

October 29, 2015

Many people know they should create a budget but are afraid of it; the thought of gathering lots of data and making decisions that may cut things they enjoy is enough to spook anyone.  Many online budget tools have tons of spending categories and might seem overwhelming, but there are easier approaches to help you see where you spend and where you might save.  It’s all about finding what works for you personally. Here are three approaches you might consider:

1.    Track Broad Fixed Expense Categories
One way to create a useful budget is to start by identifying your fixed monthly expenses.  Those outflows you really can’t control. There are many online tools and templates that can help you think of the various items such as rent or a mortgage payment, utilities, phone service, etc.  You do not necessarily need a list that breaks down every little expense.  Perhaps you will choose broad categories such as “housing”, “food and groceries”, and “transportation” for example.  Even though you may be thinking of a single month, be sure to include those quarterly and annual expenses that come up regularly such as taxes and insurance payments.  The amount leftover from income after your fixed charges shows what is left for entertainment, fun and your own personal splurges.  Be sure some portion can also be put in savings.  The “budget” is making sure you are living within the leftover amount.  If there is little left over after fixed expenses, you may want to review some important lifestyle decisions that drive your fixed expenses.

2.    Think 50-30-20
Our advisor Pearce’s favorite approach is to budget with the 50-30-20 method. 50% of your take home income is for fixed costs such as rent, utilities and loan payments; 30% is for personal spending such as food and entertainment; and 20% is for personal investment like your emergency fund or retirement savings. With this approach, you start with your current income, check that your fixed expenses fit within 50% and then just monitor your monthly spending from there. Pearce recommends you move that 20% to savings as soon as you get your paycheck, so you won’t be tempted to spend  it.

3.    Choose Your App and Go Mobile
Maybe you prefer a take along approach.  There are some great apps today to help track your spending and create a budget.  Some of our favorites are:
•    Mint- mini app similar to Quicken to track expenses and categorize https://www.mint.com/
•    Toshl Finance- Easy set budgets and categories https://toshl.com/
•    Left to Spend- Simple app that lets you set a budget to spend down each month

If the idea of a spreadsheet on the computer or a yellow pad at home is useless, maybe you will find that a budgeting app fits your life perfectly.

Once you understand your current spending, you can create a budget for yourself.  Over just a short amount of time you will learn to spend the money you’ve allocated and any new lifestyle will become second nature.  Spending appropriately and setting realistic budget goals will help you your whole life. You’ll find the spending balance that helps you enjoy life today and save for the future too.  With tutorials and apps found online, there are easy approaches to help you.

Does the word “budget” scare you? Don’t think of your budget as a ball and chain that keeps you from the things you desire. Your budget doesn’t judge you when it doesn’t work some months, and it doesn’t shame you when you haven’t saved. People fear they won’t be able to stick to their budget and what will happen then? Well, then you review that budget and keep working to find an approach that fits you. A budget is a helpful tool to get you on a financially aware path. With a few tricks we can all become budget experts and even find an extra treat or two each month.