I know maintaining a budget is kind of a pain, but that’s mainly because most budgeting tools ask you to track 1000 different categories of spending, so consider this simpler approach. If only for one month in 2019, track every dollar that comes in and goes out of your hands. It might surprise you what you spend your money on!
The simplicity of this approach is how you treat Variable Expenses. To build the budget:
Take your monthly amount for Income and subtract Giving, Savings and Fixed Expenses and divide by 4.
The answer is the weekly amount of money you have available to spend on everything else—coffees at Radina’s, eating out at Taco Lucha, runs to Target, prescriptions at Walgreens, haircuts, date night—everything else!
Since essentially all the other budget categories are fixed monthly amounts, the only category you really need to track on a weekly basis
is the Everything Else category.
At the end of the week it doesn’t matter how much you spent on triple soy lattes or that super-cool haircut, it just matters that you didn’t spend more than your weekly Everything Else amount.
Now, if you consistently exceed your weekly Everything Else amount, you should dig into the details to see what’s causing you to overspend. However, if you are setting aside enough for Savings and your Fixed Expenses are reasonable, spend the rest (on Everything Else) to enjoy life and don’t worry about it!
Here’s a little bonus section that contains more information on the zero-based budget graphic shown above. Zero-based budgeting means Income - Expenses = $0. It doesn’t mean you’re not giving, saving, investing, etc., it just means that every dollar that comes in each month has a place to go.
A big part of this is treating Giving and Savings amounts as expenses, meaning subtract them from your monthly income, just as you would your Fixed Expenses and Variable Expenses. Forcing Giving and Savings amounts into the budget in this manner is a behavioral finance trick that ensures these important “expenses” happen each and every month.
Your budget should look like this:
Income - Giving - Savings - Fixed Expenses - Variable Expenses = $0
Not like this:
Income - Fixed Expenses - Variable Expenses = Leftover Amount to Give and Save
Research shows that if we try to give and save what’s leftover at the end of the month, there’s often nothing leftover to give or save :(