Not everyone loves budgeting like my buddy J. at Budgets are Sexy. If you loathe budgeting like most of us, then today is your lucky day. I’m going to share my simple AND easy budget plan with you. Check it out and let me know what you think.
Joe’s Simple & Easy Budgeting System
Here is my simple & easy budget plan.
I have a monthly budget of $4,800. Then I check at the end of the month to see if we met that goal by spending $4,00or less. If we meet that goal, then great!
Simple and easy, isn’t it? Okay, you have some questions. I’ll answer them.
How did I come up with $4,800?
I have tracked our monthly expenses for almost 10 years now. In 2016, we spent about $4,500/month. In 2017, we averaged about $4,100/month. Last year was a particularly good year because we didn’t have to pay for preschool anymore. That gave us some financial relief. Anyway, these records gave me a good guideline for setting up our monthly budget.
From 2014 to 2017, our budget was $4,500/month and we’ve been able to stick to it for the most part. This year I increased our monthly budget to $4,800 because we were planning a trip to Iceland. I knew that trip was going to bust our budget for a few months. I also felt like our cost of living was increasing. Groceries were getting more expensive. RB40Jr signed up for extracurricular activities. Our medical expenses also increased as we aged.
Anyway, that’s how I came up with our monthly budget. It is based on past spending experience. Personally, I think it is essential to track your expenses pretty closely. Most people have no idea where their money went every month. If you track it, then you can cut out unnecessary spending and start to improve. It will give you a chance to increase your saving rate and invest more. Tracking your expense is the first step toward financial independence.
How do you track your expense?
I’ll give you a quick recap and you can read more detail here – Track Your Expenses!
Old school tracking
There weren’t any cool apps when I first started so I went with the old school method – tracking everything on a spreadsheet. I used Excel, but if you don’t have it, then you can use a free spreadsheet like Google spreadsheet.
I put each expense category in the column and an expense line item in the row.
Here is a link to a template I made on Google Sheet – RB40’s cash flow tracking spreadsheet. You can start with this and customize it.
It will be tedious to get the spreadsheet set up just the way you like it. Once you’ve got it up and running for a few months, it will become much easier. Every month, I manually go through our checking account and credit cards and enter each line item on the spreadsheet. This takes about 2 hours, but the act of typing things in forces me to remember what we spent our money on throughout the month. This is a good thing. If it’s all automatic, you won’t have to recall what you spent $17 on at Target. Was that Nerf gun frivolous or was it a good buy?
I love the spreadsheet method and I think everyone should use it when they are starting out. It is perfect when you have one checking account and a few credit cards. However, most of us develop more complicated finances as we build wealth. I now keep track of 3 bank accounts, a money market account, 4 credit cards, a brokerage account, i401k, rollover IRA, Roth IRA, real estate crowdfunding, Junior’s 529 plan, and Mrs. RB40’s accounts. It’s still possible to keep track of everything on a spreadsheet, but it isn’t easy anymore. In this case, using a spreadsheet is tedious and it can be a big barrier for some people. Luckily, we live in the 21st century and there are other tools out there.
The alternative is to use accounting software like Quicken, Personal Capital, or Mint. I haven’t used Quicken, but I heard it is a good option. These days I use Personal Capital to get a quick overview of our spending. Personal Capital and Mint are free and I think they are very useful for most people. Check them out if you don’t have an account yet.
You can link all your financial accounts in Personal Capital’s site and it will aggregate all your cash flow information. At the end of the week, I go to the “Spending” section at Personal Capital and check how much we spent. If any category looks too big, then I’ll try to rein it in a little. Generally, everything looks fine because we are set in our ways now. We live moderately and rarely break character.
Things are good for the most part this month. Last month looked a little out of control, but it was due to the $2,800 estimated tax to the IRS. That really should have been paid from my business checking account. I’ll fix it next time.
What if you go over budget?
We’re not perfect. Just like everybody else, sometimes we spend too much. When that happens, I go over the cash flow spreadsheet more carefully and identify what caused the problem. If it’s a one-time expense like a big trip, then I usually let it go. However, it’s trouble if it’s recurring expense like eating out, I’ll have a chat with the team (Mrs. RB40) and we’ll work on reining it in.
How do you track cash spending?
I track the ATM withdrawals and put it in the “cash” category. That money is considered spent.
Will this system work for me?
I don’t know. If you’re disciplined with money, then this should work. However, if you have a spending problem, then you probably will need a different system. Try the envelope budgeting system and see if that works.
Do you ever hide your expense from your spouse?
Of course not. I never hide anything from my lovely chief editor.
Okay, that’s it for my simple & easy budgeting system. I hope this is helpful for someone. Even if you don’t like my system, don’t ignore your spending.
Remember this: the first step to financial independence is to track your expenses! You need to control your spending even if you make a lot of money.
Let me know if you have any questions.
*Try a free account at Personal Capital to help manage your net worth and investment accounts. I log in almost every day to check on my accounts and cash flow. It’s a great site for DIY investors.
Photo by Valeria Zoncoll
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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