Simple is really the way to go
People have a tendency to make financial matters more complicated than they really need to be. Complicated planning worksheets, detailed budgets and net worth calculations and other financial tools can all become overwhelming. Sometimes, the best way to achieve big goals is to make your plans as simple as possible. Why is keeping is simple so important? It is because you are more likely to follow through if the process is simple and easily repeatable week after week.
How do we simplify the budget process - budgeting seems to be one area that is most overwhelming to many people?
The best way to have a budget that will work is to only use a budget for what you can control directly, those would expenses like groceries, gas, eating out, buying clothes, etc. This would be your spending budget and where you can most control your activities. Recurring expenses such as rent, insurance, utilities and loan payments should all be deducted from your monthly income as well as your savings contribution so that you end up with a monthly spending amount.
Can this process be simplified even more?
Yes, divide your monthly spending amount into a weekly spending amount. For example, if you have $1,000 each month to spend after all of your recurring costs and savings contributions, you can budget $250 per week as your weekly spending limit. Instead of tracking what you spend, move $250 each week to another checking account and use that account as your spending account. You now only have one number track, the balance in your checking account and you only have to make it last 7 days until you get your next allotment of spending money.
This seems so simple, why does it work so effectively?
First, it doesn’t take very long to develop a budget because you are have eliminated several of your transactions that occur on a monthly basis Also this is so impactful because you are budgeting forward instead of backwards. You have to spend each week on groceries, gas, clothes, eating out, and your credit card bills. So, each week you have to make choices on where your money will go just for that week. You only have to live your budget 1 week a time and it is fairly easy to predict the expenses you will have in that week.
What about those who need help with savings, how can they simplify that process?
Two words - automation and access – are the key to successful savings. First, have your monthly savings deposit go directly from your check to your savings accounts, just like with a 401k, pay yourself first. Second, make sure the savings option you choose it not easy to access because there will be lots of emergencies that suddenly appear every month that truly are not reasons to hit your savings account. Another good way to make the spending budget work is to have a savings account for items that normally come out of your spending budget such as clothes, anniversary or special occasion events, etc. That way, you are saving all year for these and you don’t have to impact your spending budget as heavily when these events occur