One of my core goals is to lead a simpler, more focused life. This post explores some of my original ideas for simplifying money.
Mention the word budget and you immediately lose half the audience. Some are “way too advanced” for it, some have tried and failed, and others are too scared to even look.
I think budgets and the recent wave of minimalism sweeping the Web have something to teach each other. Can we really simplify a personal budget to the point where it’s no longer a scary, frightening creature staring out from under your paperwork? I think we can try.
Budgeting is often seen as an all-or-nothing kind of thing. If you don’t have the time to sit down and work hard, the thinking goes, don’t even bother starting.
It doesn’t have to be this hard–I think we’re all over thinking budgets and the process of creating them. It takes a bit of voluntary simplicity and a focused effort, nothing more, to create a sharp, effective and minimalist budget.
Today, I’ll show you four ways to do it, with varying degrees of simplicity. All of these methods bypass the mess of a typical budget and get to the heart of what your money is all about. The core goals of a successful budget should be:
- To plan out income and expenses.
- To keep you from spending too much.
- To compare what you spent to a benchmark.
We can do this the simple way, or we can create a category for every expense under the sun. Let’s look at a few ways to have it easy:
Broad Category Budget
Like its name implies, this kind of budget consolidates your spending into very broad categories and areas. You get a good overview of where you’re spending your money, which can actually be more insightful than seeing the details.
If I were setting up this kind of budget today, here are the categories I would include:
- Health & Wellness
- Free Spending
The last category could including entertainment, gifting, “blow money,” eating out, shopping, etc. The beauty of this kind of approach is that you start to see the relationships between different areas in your financial life, and begin to question how you allocate your money in a big-picture kind of way.
Taking things even simpler, consider setting up a budget that tracks only two categories, or at least focuses on the details in only one of them:
- Required Expenses
- Discretionary Expenses
Required includes everything from your house and car to groceries and buying your kids their school supplies. It’s everything you’ve determined that you “need” in order to carry on life (though it’s good to review these assumptions once in a while as well).
Discretionary expenses would include everything else–entertainment, eating out, shopping, gifting, certain subscriptions, etc. Cap your total spending on discretionary things every month based on what you can afford, but don’t worry too much about where you’re spending it, since it will vary from month to month.
As long as you regularly review your required expenses, and cap your discretionary expenses at an affordable level, this type of budgeting can be very effective.
If your variable expenses really throw you off every month, another angle is to differentiate between budget items that don’t change and those that do:
- Fixed expenses.
- Variable expenses.
Fixed expenses are those that are either exactly the same every month, or at least run in a very predictable range. A car payment is an example of a fixed expense, because the monthly bills are identical. However, I would also put my electric bill in this category, since I know that I will pay roughly $70 for power in winter months and $150 during the summer months.
Variable expenses are things that are unpredictable or based on your own behavior. Paying for gas is unpredictable, since you might decide to take a trip out of town one month. Groceries are unpredictable, since you pick the food you want to eat, how much of it you want to eat, and when you have guests over to your house.
Consider setting a total for fixed expenses that’s based on adding up everything in that category, and put it aside. Focus on setting a total for all variable expenses in your life, and understand that like discretionary spending, variable expenses will ebb and flow between categories. You might need to throw a party one month, but can offset it by riding a bike to work for a week.
Category Focus Budget
Last but not least is what I call “the laser focus.” It’s very possible that the financial problems in your life are caused by overspending in a small handful of budget categories, sometimes as few as one or two. Take the time to identify these and bring them to the forefront of your focus.
Cap your spending for all other categories so that you have a benchmark and can identify hidden problems, but put all of those aside for now. Instead, isolate only the problematic areas and do everything you can on a daily basis to plan, track, and review spending in those specific categories with everyone involved in making spending decisions in your family.
Staying focused on a few select areas instead of being overwhelmed by your entire budget can really help you get things under control.
Your Minimalist Budget
Ultimately, your minimalist budget should be whatever is the simplest, most direct approach that works for you. If you practice this kind of approach right now, I’d love to hear about it in the comments.