Budgeting sucks! It really does! It’s so complicated! Let’s think about it for a second…. OK, times up. That was already too long! I just want an easy way to budget that doesn’t require me to categorize, sub categorize and sub-sub categorize every expense in order to stay on track. OR…doesn’t require me to put cash….in an envelope. Seriously? Cash? This is 2018 and I would just rather not.
So for those of us in the digital age, I have an easy way to budget, keep yourself in check and not get too confused all at the same time. It’s simple, needs vs. wants.
Needs vs. Wants
Let me start by saying that there is no such animal as “the ideal budget”. It doesn’t exist. There are just too many factors. Without even getting into our personal goals, you have to consider where you live, your income, tax bracket, family size, medical needs, the car you drive, how far is your nearest Walmart, how important your dog is to your kids and so much more. It’s just not possible.
So, we simplify it! All you need to know is whether you actually NEED something or WANT something. This also can vary from person to person. For example, I don’t NEED to make sure our TV streaming service has Disney Junior, but the kids and my sanity say that I WANT it. You NEED to have a roof over your head, food, medical care, gas in your car, etc. You WANT Netflix, Amazon Music, weekly date night, cable TV and a special brush for cleaning your dog from Amazon.
Other NEEDS to consider are the various forms of insurance you need as protection against the unknown.
Fixed vs. Variable
Now that you’re in the right frame of mind, let’s add one more distinction when tracking your spending. Each need and want can be either fixed or variable.
fixed need or want would be something that you’ve already committed to and are likely making payments toward each month, like your mortgage or a gym membership.
A variable need or want is something that you decide to buy in the moment, like gas for your car or ice cream.
This distinction will prove valuable when looking back at your spending to make room for your goals.
Pretty easy so far, right? Those are the only 4 categories you’ll need to know for this “easy way to budget”. Now, we build YOUR “ideal budget”.
3 Easy Ways to Budget
Looking back won’t do us much good, other than to better understand what your NEEDS are. So, I want you to take these 3 easy steps:
Step 1: Look at your old statements
For all of the accounts and credit cards that you “spend” from, pull up a minimum of 3 months of statements. The further back you go, the more accurate this will be.
Step 2: Find your “Needs”
Comb through every transaction and highlight what you determine as a “need”. Then, decide if it’s a fixed or variable expense and come up with a total for both. Keep track of these figures along with the month and year. If you’re not sure whether something is a need or a want, it’s probably a want. That being said, everyone is different and has their own idea of what is necessary.
Step 3: Determine the monthly totals….and repeat
At this point, you want to take the totals for Variable Needs and Fixed Needs and divide. If you go back 3 months, divide the number by 3. If you go back 6 months, divide by 6, and so on. This gives you your monthly average. As you continue on with this exercise going forward, the monthly average will change slightly and become more accurate as you go.
Taking these 3 steps will give you a sense of how much room you have left for Wants and/or goals. If you’re not happy with it, then it’s time to re-evaluate your spending. Start by looking at your Variable Needs. You may be able to lower those expenses just by making small changes, like utilizing a coupon app or taking advantage of special programs at your favorite gas station. Then, look at your Fixed Needs and look into renegotiating your internet bill or contacting your auto insurance agent to shop for better rates.
At the very least, this easy way to budget will help to get your attention on your spending. You’ll stop blindly spending money and hopefully be on your way to the next smart money move.
Sports Fan, Movie Buff, and Anything Outdoors sums it up. Brad loves spending time with his wife, Ashley, and their two boys. He helps empower people to take control of their money, bringing them the confidence to build the life of their dreams.
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About Matt & Brad
They are identical twins and money experts. Matt and Brad Ruttenberg have, combined, over 2 decades of experience as financial planners. They are known for simplifying money and helping others go from living paycheck to paycheck to thriving financially.
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This communication is strictly intended for individuals residing in the states of Florida, Michigan, Arizona, Nevada, New York, Ohio, and South Carolina. No offers may be made or accepted from any resident outside the specific states referenced. Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. The Money Twins and Ruttenberg & Company are not affiliated with Cambridge.