The Last Budget You’ll Ever Need
Most people hate budgets. As a result, even more people don’t have them at all. In my experience, you don’t HAVE to have a budget to be successful financially, but I have noticed a correlation between clients who have one, use it, and are able to save consistently, and those who do well.
Let me start off by saying if you have a system that works for you…amazing. This post isn’t for you. Most people struggle to find a method that they can actually live with so, you are in rare territory and should stay there! If you’re someone who has tried and always failed, this might be more up your alley.
No more constant adjustments. No more coffee budgets where you spend nothing this month and a ton the next when family comes to visit.
Instead, I would like to introduce you to the three-category budget system: Fixed, Flex, and Non-Monthly. In this blog post, we'll break down each category, explain how they work, and reveal the secret to faster feedback in your budgeting process.
1. Fixed Expenses
Fixed expenses are the foundation of your budget. They are the non-negotiable, regular costs that you must pay every month. These include items like rent or mortgage, utilities, insurance premiums, and loan payments. Expenses that are more or less the same every month. A benefit of these types of expenses is they can be automated. Set it up, and free your mental accounting for other things.
The key to managing fixed expenses is to make sure they don't exceed too much of your income. To do this, calculate the percentage of your income allocated to fixed expenses. Ideally, this should not exceed 50% of your total income.
2. Non-Monthly Expenses
Non-monthly expenses are those that don't occur on a monthly basis but are predictable and happen at some point throughout the year. These include things like annual subscriptions, quarterly taxes, or semi-annual insurance premiums. The secret here is to set aside money regularly to ensure you're prepared when these expenses arise. You can do this by creating a separate savings account for non-monthly expenses and contributing to it regularly.
To make it easy, divide the total cost of all your non-monthly expenses by 12 (for monthly contributions) and set up automatic transfers. You can also do this for things like vacations, which makes saving up easier.
3. Flex Spending
Now, let's talk about the most dynamic part of your budget: the Flex category. This is essentially everything that is left over and where you have control and discretion over your spending. Flex spending covers groceries, dining out, entertainment, shopping, and any other expenses.
To make it easier, you can calculate your Flex spending allowance by subtracting your Fixed and Non-Monthly expenses from your total monthly income. Then, divide the remaining amount by 4 to get your weekly spending limit.
The key is to check in on your Flex spending every week, starting on Saturdays to see how you did. Think about how often you blow through your budget 3 weeks in and then it is too late to make a change. Having a more frequent check-in will provide you with faster feedback and help you make adjustments if necessary.
I use a budget system like this with my clients who need help with budgeting, and it helps them recognize what it means to “live inside your means.” The flexibility makes it ok if they have a big concert expense one month, and none the next. You get to live that flexible lifestyle!
If you’re interested in a free starter Google Spreadsheet, I’d be happy to share it with you and talk you through it. Just sign up for an Intro Call and write that you’re only interested in the Budget Framework. I’ll help you set it up!