Budgeting Made Easy and It Really Works!

After many years of spread-sheeting (I'm addicted to Excel), I've come up with a simple way to stay on budget that actually works.  I've tested it now for over a year and not only are we finally staying on budget, we've saved more than planned.

The problem I've found with most systems I've tried or read about is, they are either not proactive enough or too complicated.

The good news is that you don't have to spend any time tracking your expenses before starting, the system will make them obvious in a few weeks.  You only have to know your "Discretionary Expense Budget" as illustrated in the example below (I chose the numbers only because they divided easily for example purposes):

Here's how my budget system works:

Step One: Calculate your Monthly Net Income (i.e. your take home pay after all deductions/taxes are removed).

Step Two:  List out your Non-Discretionary Expenses.  These are items that will leave you homeless or in serious trouble if these bills are not paid.  This is NOT everything you THINK you want, only the payments you really NEED to make monthly. (See Example below)

Step Three:  Take your "Monthly Net Income" number and subtract the total of your "Non-Discretionary Expenses".  This new number is your "Monthly Discretionary Budget".

Step Four:  Take your "Monthly Discretionary Budget" and divide it by four, this is your "Weekly Discretionary Budget".

Now the trick is how you track your weekly expenses...

Step Five:  Use an old fashion calendar somewhere where you and your spouse have easy access to it (ours is on the pantry door).  Then each time you spend any money you write it in the Sunday box or off to the side and keep a running subtotal.  Once you reach $300 (in this example), you're done spending money for the week.  If you go over, that becomes a deficit for the following week.  One thing to remember to avoid deficits is to put down money you know your going to spend that week down at the beginning of the week before you spend it.  To simplify you could budget some regular monthly expenses as "Non-discretionary" for calculating your weekly discretionary amount.  However, remember if you start falling short regularly or get into a financial bind, it means you need to reevaluate those expenses.

You'll be amazed at how having the numbers right there for everyone to see and in real time each week really helps you stay on a budget.  Like anything new it will take a little getting used to and you'll need to give yourselves a little grace. As you stick to it you'll find it gets easier and easier.  For instance, you'll discipline yourself to wait a week to spend money and not recent it :-)  Believe it or not, there is great freedom in living on a budget.

One Warning!  EVERYONE must be on board for this to work, i.e. husband, wife and kids if they get allowances.  The system is easy and effective but only to the point it is fully implemented.

Note:  Assuming you get paid bi-weekly (every two weeks).  Calculate your income based on only two paychecks a month.  Then if you stay on budget you will have saved your extra two paychecks a year.

Hope you find this tool as helpful as we have!

Budgeting Tool Illustration:

Net Income (NI) $4,000 Monthly Take home Pay Non-Discretionary (ND) Expenses you have to pay or there is a negative consequence. Tithe $400 Mortgage $1,000 Property Taxes $400 If this is in escrow, include with Mortgage. HOA/ROA Fees $500 Life Insurance $150 Property Insurance $50 Gas/Water/Elec $300 Budget this based on your highest bills in the last year.  This will give you some cushion on the low months and cover you on the high. Subtotal $2,800 Subtract NI from ND Subtotal $1,200 Divide by 4 and each week you can only spend $300 Discretionary Items: Some of these may not seem like optional expenses but with the exception of groceries they really are, it just may not be fun.   Groceries I put groceries in this category because the majority of what we buy is discretionary.  Items can be substituted for less expensive/unprocessed items or offset by coupons. Eating Out You don't NEED to do this, its just a want. Home & Cell Phone You could choose to only have one or if needed or cut back on plan hours & extras (i.e texting and internet). Internet Charges Though it is convenient, you could live without it and use public computers at the library or use public wi-fi if you have a laptop. Cable TV You don't NEED this for anything, its just a want. Free TV & Movies are available online & library or you could go back to reading books :-) Gas/Tolls If needed consolidate your trips, carpool, bike, or use public transport. Car Payments Most people could downsize in quantity or quality, to eliminate this payment. Club Memberships/ Sports/Classes In most cases, you don't NEED to do this, its just a want, i.e. Gym memberships Misc. Clothes Misc. Home Care Misc. Auto Care, etc.