You’ve tried budgeting and it never sticks because it’s just too burdensome. You know the importance of getting a handle on your money, but you haven’t found a solution that is easy and works. That changes today!
Life is busy and you just don’t have time to spend hours budgeting, even if you wanted to. This is partly why you shouldn’t try to budget every single dollar you make. Instead, to make budgeting easy, you should only be budgeting your discretionary income. Let me explain.
Here’s the formula: Take Home Pay minus Necessity Expenses = Discretionary Income.
Start by spending some time identifying your Necessity Expenses. You can download this spreadsheet to help with that. Then subtract that number from your Take Home Pay to arrive at your Discretionary Income.
Once you know your DI, this is the number you need to budget. Notice that I didn’t say you need to budget your Necessity Expenses. For the most part those are relatively fixed and don’t really change that much. So when it comes to NE, you just need to figure them out one time and adjust them periodically as necessary.
Now, back to your DI. Once you know this number, you’ll need to budget it for discretionary items such as vacations, entertainment, dining out, housing, gifts, investments, etc. Essentially you are budgeting for your goals.
Once you’ve figured out how much to budget for each item, you’ll need to automatically transfer that amount of money to your savings account each month. You can even set up multiple savings accounts to do this. An Ally Bank savings account is a good option for this.
The benefits of this budgeting approach are two-fold. First, budgeting will be very easy. Second, you will now have a peace of mind knowing that you are saving money to areas that you previously weren’t able to. Think about how stressful it is at Christmas time knowing that you have to come up with a lot of money for gifts. And that usually results in a larger than usual credit card bill. That problem will now be solved if you follow this budgeting technique.
I’d love to know how this approach is working for you! Please comment below and tells us about your experience.
Brad Tinnon
P.S. We are currently working with a tech company to develop an app to automate this whole process. If you’re not signed up to receive our weekly financial tips, sign up on our Blog Page to be notified when it rolls out!
2 thoughts on “An Easy Way to Budget”
Brad this is an excellent post! As a therapist I find myself talking to people about money quite often because it’s misuse creates additional stressors in their relationships. Keeping a budget overwhelms folks to the point of immobilization which in turn creates more misuse. The approach you are offering is a fantastic resource and so comparable with your philosophy and approach to managing money!
Great Job once again and thank you!
Hi Mary. Thanks so much for the kind words. Most people would admit that budgeting is very hard (or at the very least hard to stick with), so hopefully others find this approach easy to implement!