The b-word (Budgeting 101)

I’m going to write about a simple way to budget, a way that’s helpful and simple and, dare I say it, almost kind of fun.

I know. I know! Budgeting is not something people tend to think of as fun. No one throws a dinner party followed by a wild night of budgeting. No one shyly invites their crush out to a movie and some budgeting. No one throws a surprise budgeting party.

But! I’m here to tell you that budgeting does not have to be painful, that it in fact can be liberating to come up with a budget. For me, my budget is the thing that helps give me the structure and support to know what I can and can’t buy, to know when I’m on track and to know when I need to reel it in a bit. A budget can kind of be like your friend who tells you when you have spinach in your teeth and when you look ready to slay (all day).

It helps that I have a pretty simple budgeting technique. I’ve seen lots of budgets with a million categories to keep track of — clothes, restaurants, entertainment, gas, doctors, blah blah blah. Let me tell you something: I am lazy. Those budgets feel like too much to me; as much as I love personal finance and talking about money, my lord, no, I wouldn’t want to do one of those budgets either. And I feel like pushing those kinds of budgets on people does them a huge disservice, because all it does is make something far more complicated than it needs to be.

Here’s how I budget:

1. Look at how much I’m taking home each month (this is after taxes, health insurance, other deductions, etc). This is the money I have available to me.
2. Subtract my essential fixed expenses. Fixed expenses are the things that don’t change month to month. A mortgage would be a fixed expense; your contracted cell phone bill is a fixed expense; a car payment, an insurance payment, all fixed expenses. I’m specifically here talking about essential fixed expenses — those things that you need to live. A recurring charge for, say, a clothes rental service doesn’t count. For things like your power bills, take an average of your yearly bill to get an idea what the monthly cost is.
3. Subtract those essential fixed expenses from your take home money. This is what you have to work with for a catch-all category I think of as “discretionary spending.”
4. Figure out your goals for this remaining sum. How much do you want to save? How much are you comfortable spending? What split of spending and saving would let you enjoy your life but also save for the future?
5. Subtract the amount you want to save; this is what you have to spend.
6. Divide that up into weekly “allowances.” Spend this weekly allowance however you want — but once it’s gone, you’re done spending for the week. You can always save for weeks ahead, but don’t borrow from the future.
7. You’re done! That’s it!

Let me use some nice round numbers as an example (see? I told you I was lazy). Let’s say Allison takes home $3,000 a month. Her rent is $1,000, her car payment is $250, she has renters’ and auto insurance of $150 per month. Her utilities and cell phone together average $200 a month. She’s also got a recurring charge for some medication she takes ($40), $50 for parking at work, $60 for internet and $50 for her gym membership. So far that’s $1,800 per month in essential, fixed spending. (I’m calling the utility bill fixed, even though we know there can be some variation in there.)

Allison’s take home of $3,000 minus her essentials of $1,800 = $1,200 left per month. Allison decides she wants to save $100 per month in her emergency fund and $100 per month in long-term savings. That leaves her with $1,000 per month, or roughly $225 per week.

How does Allison spend that $225 per week? Well, let’s look at some possible examples, shall we?

Week 1 of the month: There’s an *amazing* grocery sale on ground beef and whole chickens, two things Allison knows how to turn into great meals. She loads up and stuffs her freezer. Now, this means her grocery bill that week is higher than usual, but it also means she can stretch what she’s bought longer than usual, too. The rest of her money that week goes toward gas in her car and going to see a movie with friends. (Let’s assume this is pre-covid when we all had lives.) Total: $224.

Week 2: Her grocery bill is miniscule this week because she has all that yummy goodness in her freezer, so she’s just buying a few perishables to round out her diet. Excellent! Instead, she splurges on a new pair of jeans and shoes for a date night, then pays off a parking ticket when she think it’s okay to double park for a few minutes (whoops). Total: $198 (she gets to carry over the unused $27.)

Week 3: Cat food and treats for her kitty, plus meeting some friends for dinner. She does another grocery trip — this one is closer to normal but still not as big as usual. She does, however, pick up some toiletries and household essentials like laundry detergent, dish soap, moisturizer and sunblock. Total: $172 (she gets to carry over the unused $53, for a total of $80 carried over the past two weeks).

Week 4: Well, look at this — her favorite band is coming to town next month! Allison buys herself a ticket; it’s expensive, but this is their farewell tour, so it’s worth it to her. And because she had $80 carried over from the past two weeks, the $200 price tag won’t leave her starving for the week. More grocery shopping, more gas for the car and another movie with friends. Total: $425.

I am, of course, completely making up these numbers. But they’re just here as an example, to show you how my budgeting system works. For me, this budgeting system gives me lots of flexibility and freedom while still knowing where my money is going and feeling like I’m meeting my financial goals.

If you want to get fancier with budgeting, you absolutely can. And in fact, I’ll get into the subject more in the future, because once you master this set of basics, there’s a lot more you can do to get and keep control over your money — which means getting and keeping control over your life.