How to Simplify a Budget
Finances have a knack for becoming complicated. Therefore, making your budget as simple as possible will allow you to get a better handle on your finances so that you can focus on matters that are more important. Simplifying your budget can have positive effects on all aspects of your finances by helping you keep everything under control.
Stressing out over your finances is a waste of your time, so rein them in today with a simpler, easier-to-manage budget.
Follow these strategies to make your budget easy, workable, and effective:
Start with a simple spreadsheet. Keeping things in a spreadsheet can simplify your budget significantly. Set it up however you like or download a free template for Excel or Google Docs; there is not a one size fits all solution so just choose something that works for you.
Devote 60% to your expenses. The 60% Solution is a budget strategy that entails fitting your expenses into 60% of your gross income so that you can dedicate the remaining 40% to retirement, debt repayment, short-term and long-term savings, and fun or entertainment expenses. Depending on the size of your debt this may take time to accomplish. It is a good goal to work towards for greater financial security.
Devote 10% to your retirement. Put 10% of your gross income toward your retirement, such as in a 401(k) investment plan. Refrain from touching this money for any purpose unless the circumstances are dire. If you don’t feel you can do 10% don’t get discouraged, start with a number that is manageable for you even if it’s only 2%.
Devote 10% to debt repayment and longer-term savings. Invest in an index fund or stocks if these are your investment vehicles of choice. Otherwise, put the money away in a savings account and touch it only to repay debt or in financial emergencies. I encourage individuals to have an emergency fund that is easy to get to. A short term-goal could be $2000, while a long-term goal would be 3-6 months of monthly expenses.
Devote 10% to your short-term savings. This money is for periodic expenses like medical expenses, auto maintenance and repairs, appliances, birthday gifts, Christmas gifts, and home maintenance costs. Spend this money when you need it, because that is precisely what you're saving it for.
Devote 10% to your "fun money." You can spend this money in any manner that pleases you. This is guilt-free money that you can spend on movies, entertainment, eating out, comic books, junk food or anything else that you wish. If you are too strict with your budget plans then you may get discouraged so it’s good to have some money to spend on enjoyment so you are encouraged to follow through with your money goals.
Reduce the number of categories you use. Many budget software programs instruct you to use a million different categories or subcategories. If you want to simplify your budget, use as few as you can. Rather than having a category for every entry, combine some expenses into a larger category to KEEP IT SIMPLE.
Pay your bills online. Automate your bill payments as much as possible so that you don't have to remember to pay your bills every month or buy stamps. Consider automatic bank withdrawals and pay bills online through automatic debit whenever you can. You can set up one-time or recurring payments. It’s usually free and helps keep you organized.
Automate your savings. Every time your paycheck is deposited into your account, have a transaction scheduled that will transfer a specific amount into your savings from your checking. Aim to find a high-yield savings account for this purpose. I encourage clients to have separate savings accounts for the above.
Keep your fun money in cash form. Take out your 10%, keep it in cash, and use it as you see fit. Watching the cash disappear from your wallet can actually teach you a lot about where the money goes. Research shows that people tend to spend less when they use cash.
If you investigate, you'll find numerous techniques to simplify your budget. Do what works well for you and your family. Avoid struggling with a new budget plan because you think it must be better. If it isn't actually helping you budget, then it's not the "better" option for your needs. Sometimes simpler is more effective.
Where are your spending priorities? Which one of these strategies above stands out as an area you would like to change? Remember every step helps so start out small.
Do you need more help with budgeting? If so, check out my YouTube videos for more tips.
