THE ‘NO BUDGET’ BUDGETING METHOD
How many of you ended up here because you have a goal of saving money and taking control of your finances? And how many of you want that, but want to put in the least amount of effort possible? My kind of people! Today I want to talk about budgeting. Everyone’s favourite topic. However, instead of forcing you to track every penny, I want to share the easiest budget method I’ve found to eliminate overspending without all the work.
MY HISTORY WITH BUDGETING
If you’ve been around the blog for a while, you’ll know that I’m NOT a natural saver. I swear there is a something in your DNA that determines whether you’re frugal or spendy. I definitely have the spendy gene. That doesn’t have to be a bad thing though. As they say, the first step is acceptance. Understanding yourself as a spender will let you build up an arsenal of tools to counteract that. And budgeting is a big part of that.
I was never taught how to budget. Sure, in the back of mind I knew what budgeting was, but until a few years ago I never created one.
I started working when I was 14. It was a part-time gig at the physio clinic my mom worked at. I worked a couple of evenings after school and earned a bit of ‘spending money.’ That’s how my parents’ always referred to my earnings. And that’s exactly how I treated it. On weekends I would get dropped off at the mall with a friend and buy new clothes or junk food and that month’s pay cheque would disappear into my closet. Luckily, I never went into debt, but that money sure didn’t bring much value into my life.
ENOUGH IS ENOUGH
Flash forward a decade, and I was still doing pretty much the same thing. I graduated from university at 23 and got my first full-time job. I was living with my boyfriend (same one as now) there was now rent and real bills to pay. Sure I was earning more money than ever, but I also had higher expenses than ever. Looking back, I’m really happy the job I took was in finance. It opened my eyes to what money can do if you save it instead of buying more clothes.
Budgeting for me started in the most general sense of the term. I would track expenses (when I remembered) and had at least a basic knowledge of how much the ‘essentials’ cost each month. I also started setting money aside into RRSP’s every month; don’t give me too much credit though, it was through a work plan.
Through the years I’ve been good and bad at budgeting. I often get inspired and go all out with tracking every dollar that comes in and goes out, but that lasts for all of a month or two. Hardcore budgeting is not for me. And that’s the lesson I want you to take from this; it doesn’t have to be for you either.
THE ‘NO BUDGET’ BUDGET
This is the one method of budgeting I’ve always come back to because it’s not really budgeting in the traditional sense.
I don’t want you to get fooled; you will still have to do some work. Especially to get things set up for the first time. I promise it’s simple though.
YOUR ESSENTIALS LIST
The first thing you have to do is figure out how much you spend every month on what you consider essentials. I’m not here to tell you what is and isn’t essential. We watch a lot of hockey so paying for cable is essential. Maybe you pay for a cleaning service or get your groceries delivered. Anything that you pay for every month and deem necessary for your sanity goes on this list.
Step two is figuring out how much money you bring in every month. If you are single and have one salary job, then this is easy. If you are a self-employed freelancer than this can get more complicated. I’m not an expert on self-employed income, but I would suggest taking an average of your income over the last three to six months to get a ballpark. If you’re in that situation, I would also add a ‘buffer’ to your essentials list of maybe $200 to help cover if you have down month.
If you have multiple income streams, then include them all here. Side hustle income, rental income, etc.
Time for math. Subtract your essential expenses from your total income; what do you get? Hopefully, it’s a positive number. If not, then you’re going into debt every month. Your mission for right now is to figure out a way to either reduce your essentials list or increase your income.
For those with an excess, we need to make a plan for that money. The first step is setting up automatic contributions to your savings accounts. How much? I’d suggest at least 50% of the excess goes to savings. Remember, your essentials are already covered so this is just the split between saving and fun money. If you can, go even higher but it can be more motivating to build up instead of dropping down.
Now you know how much money is coming in, how much your essentials cost, your automatic savings are set-up and you’ve got a little leftover for guilt-free spending.
When you’re just getting started, you might feel uber motivated and want to sock away every last penny. That mentality is great, but I’m a big supporter of fun money . It will prevent you from feeling deprived and keep you motivated. If you find you consistently have money left at the end of each month, then go ahead and bump up that savings rate.
THE EASIEST BUDGETING METHOD
Once you know all the above info, you’ll have the exact amount you can splurge each month. I like to keep this separate from everything else. For beginners, the easiest method is to withdraw that amount as cash, so you have a constant visual reminder of how much you have left to spend that month. Or, keep a separate bank account or credit card that is for your fun money and check in with the balance to ensure you’re not overdoing it.
No worrying about tracking every dollar you spend, just sticking to a guideline. Plus, the longer you live on that amount, the easier it is to know when you can and cannot splurge.
Because most of my bills and savings deposits are set-up automatically, I spend only a few minutes at the end of the month ‘budgeting’ using this method.
Now you know how I budget, so I’d love to hear your methods!