How to Budget when you’re bad at budgeting

The following is a piece I wrote from my time as a financial advisor. After working with several clients, one thing became obvious- many people don’t budget, and with good reason. Budgets can be intimidating, and frankly, it just doesn’t sound …sexy. Honestly speaking, I don’t think there’s any way to truly make budgeting all that ‘sexy’ but I hope the tips and strategy I’ve included below will at least make it tolerable and help you as much as it helped my clients. The amounts below are just examples; the strategy should work for you whether you have more or less income.

Budgeting. Just the word itself sounds tedious, heavy and even ominous -but it doesn’t have to be. Budgets can seem like a big deal, and that’s because they are, or at least should be: A strategy for controlling your spending and setting achievable goals for saving your money is the surest way to secure your financial future.

What does that mean in real and applicable terms? To demonstrate I’ll use an example of an actual situation that occurred while consulting with one of my clients. Let’s call the client *Robert*. Robert wanted to invest in his retirement but was not sure if he could “find the extra cash” to do so.

Budgeting can be simple with the right strategy

Budgeting..it doesn’t have to be complicated
(Image Credit: rawpixel.com on Unsplash)

Together Robert and I created a simple budget (using the steps below) and to Robert’s surprise, he had an extra $1200 unaccounted for every month!

What does that mean?  Well, every month after Robert paid all his bills, bought all his necessities and spent a suitable amount on entertainment, according to what he thought he was spending, he should have had an extra $1200. Instead, the extra money was being absorbed into random spending. You know, the kind of random spending where you see a pair of shoes or that gym membership that you won’t actually use and you buy it-never to see it again until next year. Impulse buying. We’ve all done it, and it is the enemy of personal economic progress.

The beauty of budgeting is that not only does it help you to manage your money and increase cost awareness, but it can also help you to identify your own bad spending habits.

Now, for something this important- revolutionary even- you might be thinking that it will take hours and hours to do- not true at all. A simple but effective budget can be done in less than 20 minutes and I’ll show you how.

I like to use —>the 50/30/20 method<— for simple budgeting. (Percentages can be adjusted later based on your needs). Using this method the breakdown of your budget is as follows:

50%- fixed costs, 30% enjoyment and at least 20% should go towards saving and investing in your future.

Eg.

Total monthly salary: $2500

Allocation:

Fixed Costs: $1250 (50% of $2500)

Rent $600. Groceries $250. Transport: $200 ($10 per day*5 days per week= $50 p/wk. $50*4 weeks p/month) Bills: $200

Enjoyment Costs: $750 (30% of $2500)

Transportation: $100 ($25(transport cost) *4(number of nights going out per month))

Dining/drinking out: $300.

Other (clothes, shoes etc) :$350 (If you buy something every couple months, divide the cost by the number of months. Eg shoes every 4 months at $200 = an expense of $50 in your monthly budget)

Savings and investment: $500 (20% of $2500) are left over to invest in your future every month. This can include things like retirement funds, savings accounts, personal insurance etc.

Re-evaluate your budget every few months based on your changing needs. If you’re just starting out, try using this simple control technique called the Envelope method:  Every week set aside 3 envelopes with that week’s funds each of the 3 spending sections in the budget above (50/30/20) and only take from the related envelope when you need to, for the reasons listed on the particular envelope. If you have cash left over from any of the sections in the budget, place it into an extra “emergency fund” envelope, should anything unexpected occur.

I hope this article helped you!

Do you have any questions, suggestions or budgeting tips that have helped you?  Feel free to write them in the comment section below and I’ll get back to you 🙂


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