The Budgeting Process for Idiots
The words “budgeting process” come along with a lot of connotations. If you’re anything like me, it causes your eyes to roll back in your head and go on a great white shark rampage through the city as you tear down anyone and anything that’s ever told you that you shouldn’t spend so much on organic kale chips or that you don’t really need cable.
I need to be able to watch primetime TV and I wanna eat shitty-tasty organic froo-froo crap while I do it. Cuz I’m millennial like that.
But after years of trying to come up with a budgeting process that not only help me but don’t make me want to smash habanero peppers in my eyes, I FINALLY came up with something that’s super simple, works well, and is super easy to stick to.
There are some simple steps to this budgeting process. They are as follows:
- Spend like you normally would (3 months)
- Throw the data in excel
- Adjust as necessary
- Put that amount in your checking account.
- Make it work
This budgeting process is so easy, a caveman could do it.
… well, I probably can’t say that.
Well, this budgeting process is so easy, a neanderthal or denisovan could do it.
There GEICO, get off my back.
Step 1: Spend like you normally would
Now, for this budgeting process to work, you need to get an idea of what you’re spending and where you’re spending it. I would say that 3 months data is enough to catch most information that you’ll need. Why 3 months, and not just one month?
Because there are bound to be things that you don’t pay for every month, or that you haven’t paid for in the last 30 days, that are going to come up. Things like car insurance, travel home for the holidays or what have you, unforeseen expenses like buying a puppy that you simply COULDN’T leave at the store. These are all things that might not show up for a while.
But chances are, most of these will happen in 3 months. So three months.
If you’re smart, you’re using credit cards to make pretty much all of your purchases, and as such you should be able to log into your account and download what’s called a .CSV file of your transaction. This will have how much you spent, when you spent it, and even where you spent it.
This is all information that you need to move on to the next step, so make sure you’re able to download your transactions.
Step 2: Throw the data into excel
Excel, for those of you that don’t know, is a user-friendly application made by Microsoft that allows you to manipulate data. And that’s exactly what we’re going to do. Manipulate that shit.
Here’s a link to the budgeting sheet that I use.
What you’re going to do, is in that sheet, you’re going to fill in everything that you pay every single month. Things like your rent/mortgage, property taxes, student loan payments, car payments, utility bills, internet/cable/phone bill, Netflix bill, that monthly subscription to Hustler or Cosmo… because I KNOW you need those articles… Anything that’s paid on a monthly basis, you’re going to pay first.
Hopefully the question itching at the back of your head is, “What about the things that don’t fit in a nice neat monthly plan? Things like groceries, vacations, gifts for xmas, etc.? Surely there’s a way to budget for that?”
Yes, dear reader, there is.
Here’s what you’re going to do. For anything that doesn’t fit into a nice pretty month, you’re simply going to take 3 months of data for that specific budgetary item. Let’s take groceries. Some months you might go shopping 5 times, some months only 4 or maybe three.
So you’re going to take the amount that you spent over 3 months, and divide by 3. This’ll give you a rough average of how much you spend per month. Again, the actual number might vary month over month, so a simple arithmetic average will do to allow us to “predict” how much we’ll spend.
Step 3: Adjust as necessary
If you’re anything like me, you might look at that budget, have a small stroke, and wonder how you could have let that much money go. If that’s the case, this is where you need to start cutting.
This is an article in and of itself, but there are some things in your budget that tend to be more malleable (#SATword). For example, you really can’t change your rent if you’ve already signed a lease, and you can’t do much to change your student loan payments. But everything from groceries to vacations can be changed/cut, which you may or may not have to do based on your goals. There will be an article on this later, but know that this step where you’ll trim the fat.
So go through, and really ask what you need in your budget. Just some things off the top of my head you can cut: Nobody needs to shop at wholefood, pay for Spotify, pay more than $25 for a gym, spend more than $40 a week on amazon on useless shit.
Keep trimmin, ladies and gents. And once you’re found yourself a number that you think makes sense, but is still kind of lean…
Step 4: Put that number in your checking account
So if you’ve read up a lot on budgeting, you may or may not have heard of the envelope method. This involves figuring out how much you spend on groceries, rent, eating out, entertainment, and other budgetary items, making an envelope for each, and putting a certain amount of money in each envelope for the month. Once you’ve spent through the envelope, you’re done and have no more to spend this month.
There are a couple things that I like about this method: it’s simple to understand, it keeps you somewhat accountable, and it’s easily maintained. However, this doesn’t allow you to use the benefits of credit cards at all, and using cash means it’s really easy to misplace funds. Plus, there’s really nothing stopping you from putting more $$$ in the envelopes; if you want to, you can just withdraw more money and put it in.
What I’ve come up with is the 21st century version of the envelope method. Essentially, once you’ve really thought through your monthly budget, you put that money in your online checking account. That is the money that you have for the month. If you’ve really thought through the number, you shouldn’t need to move any more cash over.
Here comes the scary part….
Step 5: Learn to deal
In case you haven’t picked up on this, I really have a no bullshit, I don’t feel bad for anyone sort of attitude. And this is the approach that I take to my budget. My girlfriend and I have put that money in our account, and it’s our job for 30 days to make it work. Period. If we go out to eat a little more than we said we would, than that means that we’ve got a couple more nights of mac n’ cheese than we’d probably like. Well, I’d probably like. I’m pretty sure if I wasn’t in the picture my girlfriend would marry mac n’ cheese.
But that’s besides the point.
Now, I say this with some reservation. There are obviously some things that you’re not going to be able to budget for all the time. For example, if you have a loved one pass away and need to attend the funeral, you’re more than likely not going to be fly to the funeral without adjusting your budget. Or maybe you get in a car accident and need to prepare for way higher insurance premiums.
But all that stuff is what your emergency savings is for. So you SHOULD be ok, provided something terrible didn’t happen to you.
This is probably the scariest part for most of you, but fear can be an awesome motivator when you want it to be. Here’s the part that makes this whole budgeting thing work.
Once you’ve put your money in the account, that’s all you can put in for 30 days.
That’s it. Absolutely no more.
I would suggest that at the end of every week, you check to see how much you have left just so you have an idea of what sort of spending you can afford to do. Maybe you’re super strict for a week or two and you can go a lil’ cray cray with the girls this weekend.
Maybe you’ve already gone cray cray with the girls and you need to cut back a little. Your weekly checks are going to let you know whether or not you need to cut or if you can cut loose.
Here’s why there are some advantages to doing it this way:
- It forces you to be on your shit. Like if you run out of money in the account, that’s it. “Well, Paul, I know I can just transfer money over if I really have to/want to.” Yes, that’s true, but most online banks will only allow you 6 transfers from your savings account to your checking account per month. Which means you only have 6 tries to get it right.
- Allows you to take advantage of credit card rewards. Being able to use cards for everything, instead of actual cash, allows you to gain the benefits of using those cards. For example, I have the capital one quicksilver card which gives me 1.5% back on everything! Regular old cash can’t do that for ya!
- It’s easier. Just log on to your account, either on the computer or by phone, to see how much you have left. Don’t run home, check the envelopes on the fridge, and then run back out to the bar to say, “Hey, I’ve got $4.72 to spend, let’s go NUTS!” It also helps to really visualize how much you have left to spend.
Overall, this budgeting method has kept me WAY more accountable then any other method, and I’ve loved using it. It’s kept me on track, has been super simple to deal with, and doesn’t require me to sit for hours poring over bills and entering every little detail into excel.
The Budgeting Process for Idiots – The Wrap Up
I treat budgeting the same way I treat my investing: if it’s not the laziest method, then I simply refuse to do it. This budgeting process has finally given me a way to keep track of my money without being obsessed over where each penny goes. I’ve given myself some money, I’ve shown how much I roughly need per month, and the rest is up to me to make it work for 30 days. here’s the budgeting process one more time:
- Spend like you normally would
- Throw the data into excel
- Adjust as necessary
- Put that money in your checking account…
- And make it work
Alright studio audience, now it’s up to you. Do you think “simpler is always better” when it comes to budgeting? Do you think that the only road to financial freedom is paved with the pennies you’ve pinched? Is there a middle-ground method that you like to use?
And as always, keep trying to crack the code,