There are 1001 ways to create a budget as well as budgeting strategies floating around the almighty web. There are cash budgets, 50/30/20, zero-based, envelopes and many more strategies that either didn’t work for me or it was too much of a hassle (like cash and envelopes). Although they didn’t work for me I was inspired to figure the best strategy for myself.
But what is budget?… Wiki help!
A budget is a financial plan for a defined period of time, usually a year. This plan includes approximate costs, revenues… blah blah blah… It is essential for managing spending, avoiding debts and properly allocating resources. Wikipedia, The Free Encyclopedia.
I think of the budget as a temporary guidance. The end goal is not to have a budget, but to get good money habits and stick with it. Another way to think of it is if you want to be good at any sport you need to train hard and practice a lot. Same applies to money management. Here is how I budget.
Part 1. Where did my last paycheck go?
Learning how much you actually spend on food, shopping, entertainment may be shocking… just a warning. I never realized how much I used to spend on show tickets, merch (band t-shirt, souvenirs) and drinks every month before Mint. My shopping numbers were also terrifying.
Part 2. Expected income for the month
Include your paychecks, reimbursements, investments and even 20$ allowance your mom gives you every month.
Part 3. Math time
Expense A – a fixed month to month expense or a budget baseline.
- Have to pay (bills, loans, debt, and rent)
- Need to survive (grocery, gas, and sometimes emergencies)
I round up all expenses to the nearest zero because it saves few bucks here and there with no effort. For example, my car payment is $319.51 but I budget $320.
Expense B – splurge away to stay sane (treat yourself but keep it below $50-100)
Years of failed budgeting only to learn I go crazy following a strict budget and completely ignore it the next month spending hundreds of $$$ shopping. My theory is, spend a little to not spend a fortune. I budget under $50-100 for mix expenses for when I start to stress out over money or anything really. I use this money as a happiness investment. I would take myself out for a fancy lunch during a stressful workday, get show tickets and few drinks while at it or take a 2-hour drive in the mountains for an ice cream cone.
Now is a time to get your calculator out. I like math, sorry.
Income – (Expense A+Expense B) =Expense C
Expense C – priorities
You can save, invest, and payback or be like Fry…
Alright, Fry is a bad example, but we’ve been there while buying the latest tech device just because. You either spend it or put that money to work. Finding a balance between the end goal (Financial Independence for me) and enjoying life along the way is the key. As of now, I choose to save, payback and invest in my future, while Fry over here just got his new iPhone.
Part 4. Overview
Make final touch-ups and you are done… oh wait!
Don’t make it and forget it. Follow your budget. It’s the hardest part of budgeting and it deserves its own post. Stick to your budget tips coming up soon.=)
What’s your favorite budget strategy?