A good budget is the best way to save money, cut expenses, and prepare for retirement and other financial goals. Unfortunately, the process is also boring, tedious, and the budget is often forgotten as the month rolls on. If you’re one of the many, many people who despise traditional budgeting, try one of these simple systems instead.
The Transfer Method
1. Open a Checking Account and a Savings Account
If you don’t already have one, open a checking account and a savings account at the same institution. Make sure they have online account access with free transfers from one account to the other.
2. Have Your Paychecks Direct Deposited (Or Deposit Them Yourself)
Each pay period, have your employer direct deposit your paychecks. If that’s not an option, simply take them to the bank and deposit them yourself. Put the money in your checking account for now.
3. Calculate the Money You Need to Live On
You’ll need money for food, transportation, and other incidentals each week. You can get a rough estimate of this amount by averaging what you’ve spent the last several months. Or, you can just come up with a guesstimate until you know for sure.
4. Make a List of Bills
Make a list of all the bills that must be paid before your next payday. For example, if you get paid each Thursday, make a list of the bills that are due before next Thursday. If you get paid every other Thursday, include all the bills that are due within the next two weeks.
5. Pay the Bills
Pay all of the bills that are due, checking them off your list as you go.
6. Transfer Money to Savings
Now that you’ve paid the bills, simply subtract the money you need for living expenses from the balance in your account. Transfer the rest of the money into your savings account, leaving exactly the amount you need for living expenses in checking.
7. Repeat
Next payday, repeat this process and watch your savings account grow! If you don’t have enough money to cover bills, simply transfer some of your savings back into your checking account. The most important thing to remember is that you should only keep the money you need for basic living expenses in the checking account.
The 50/20/30 Guideline
Another popular, simple budget is the 50/20/30 Guideline. With this system, you simply split your money into three different categories: fixed costs, financial goals, and flexible spending.
1. Fixed Costs
This category should include any amount that doesn’t vary from one month to the next. Most bills will fall into this category, as will subscriptions. You should also include utilities here, though they may vary slightly from one month to the next. The total amount in this category should be no more than 50 percent of your total income each month.
2. Financial Goals
Financial goals include savings, retirement planning, college funding, and debt repayment plans. For example, if you’re saving for a vacation or a new car, those funds would fall into this category. Your 401K and child’s college plan would also fall into this category. The total amount here should be around 20 percent of your total monthly income.
3. Flexible Spending
Everything else falls into the flexible spending category. This includes any amount that is discretionary, like food, entertainment, and gifts. Though some items in this category may be necessities (like food), the amount you spend on those items can vary greatly, depending on your spending habits. The total amount in this category should be around 30 percent of your total monthly income.
This Plan in Action
To make the 50/20/30 Guideline work, you should add up all your fixed costs, making sure they don’t exceed half of your total income. If they do, cut back on these expenses until they equal less than 50 percent of your take-home pay. To do so, you may need to cancel some unnecessary subscriptions, cut back on your energy usage to lower your utility bills, or even sell a vehicle to rid yourself of the payment each month.
Next, make a list of all your financial goals, then add the amounts up until they equal 20 percent. Subtract this amount from your monthly income, as well.
Finally, whatever amount is left over should equal about 30 percent of your monthly payments. This money is yours to spend as you wish, but you should, of course, make sure that you pay for important things like food and gas before you spend the rest on entertainment and other things that aren’t necessities.
Conclusion
While a traditional budget requires hours of research and math each payday, these two methods are much simpler. Though they may require a bit of time to set up, they’ll get easier to implement after the first month or so. Eventually, budgeting will be no problem at all. Instead of dealing with tons of different expense categories and daily expenditure tracking, you can do it once each pay period and be done.