You are saving, investing, and out of debt now. You don’t really want to track every dollar. But you don’t want things to go sideways either, while you aren’t paying attention. Enter Easy Budget. Here is how it works. (Graph from my very first personal finance presentation in 2009!)
Divide your spending into three categories.
- Automated Savings
- Automated Special Accounts (things you value) and bills
- General Spending
This is pay yourself first kind of stuff. Whatever you are saving for is automatically pulled from your account and transferred into its safe little home. This could be retirement, a new car, a home, or any other BIG goal. At the time we were saving for retirement via our Roth IRA’s and to buy a house. Those were pulled out right after payday and tucked away in Vanguard.
Automated Special Accounts or bills
Then out comes your bills. A lot of bills are exactly the same every month. This makes it easy to plug them into your written budget then auto pay. Netflix, internet, car insurance, cell phone, gym membership, life insurance, kids classes, student loans, whatever you have.
What are Special Accounts?
These are things that you value, and want to spend 100% of your allotted budget towards…eventually. But maybe not in that given month. Automated Special Accounts makes budgeting 90% easier!
Instead of tracking each expense all month then keeping a tab to “roll over” the extra to next month, you set up a separate check account for each of your most important categories.
Mad money for each spouse
Whatever budget items you want to make sure you are spending all of, while not going over.
We currently keep 9 checking accounts, and one general. You set up each account to have your budgeted amount transferred automatically each month. No tracking each expense needed. You can easily see when the account is getting low, or is starting to grow. (If you use rewards credit cards, you can do a quick transfer for larger expenses when you want the points.)
This is the rest of your spending. Items that don’t carry a balance forward, but instead just start each month afresh. Gas, groceries, pets, childcare, or misc. Items that vary each month and you would be fine not spending 100% of the budgeted amount, if possible.
Using this Easy Budget, there are only a few expenses that you can lose track of. Because our grocery bill is our largest expense in this category, I will sometimes track it for a month just to make sure what we are actually spending is in the ball part of what we put down on our written budget. We won’t always spend 100% of these budget items. If I can spend $100 less on groceries this month, I am not going to put that towards more groceries next month. It’s just a $100 bonus that continues to pad our general account. Once our general account gets really fat (past our emergency fund amount), we take the extra and
- Save (Invest)
The Spend is for one-time large purchases (like our super sweet pop-up camper!) or a much need shed (hopefully this year). The Save-Invest is extra amounts we roll into our retirement accounts or the next rental property. The Give is outside of our give account, and instead used for big gestures. Like the time we gave away 10% of our net worth or the year we gave away 50% of our earned income.
Easy Budget guarantees that your savings goals are being met, your bills are getting paid, and there is money for your most important values. Easy Budget takes about 5 min a week to focus on because you won’t track any daily expenses.
In the last 14 years, we have used this method for about 8 of those years. Starting out when we had $50,000 in debt, we used Real Budget. I think that is where everyone should start, and use till you are out of debt (or have a really solid repayment plan for your home and student loans).
Let’s face it. Sometimes we grow tired of the tracking each and every expense. We have other things to focus on. And Easy Budget, is well, easy!
How do you all budget? Pros and Cons? What would you say your real time commitment is to your method?