The Simplest Budget That Works

Most people in the personal finance space love budgets. We use mint or personal capital to track all of our spending and take enjoyment out of looking at the trends and optimizing our wallets.

But the reality is that most people don’t budget. It takes time. It can be annoying to know how much you spend on designer lip balm. We’re human and typically seek the path of least resistance. There’s more people watching TV at night than training for a triathlon - shout out to my two buddies who are in the latter category and spend their nights swimming, running and biking to get ready for their next triathlon!


So what should we do? We need to make it so easy that it’s not even worth a full blog post. Here we go.

Five Steps to the Simplest Budget that Works

  1. Figure out your take home pay for a month.

  2. Make sure you’re investing at least 15%, preferably 20%+ automatically (check out our post on how to figure out your saving rate). If you’re in debt, use this to pay off debt, then invest.

  3. Figure out your “fixed” expenses – rent/mortgage, car payment, cable, phone, etc.

  4. Take the rest out in cash. Spend it on whatever you want. Make sure to buy enough food.

  5. When your income goes up, increase your investing.

That’s it. It’s simple, but here’s why it’s effective.

  1. It’s easy to follow, you essentially live off a cash allowance after your investing/fixed bills

  2. It uses cash. This is super important. It’s too easy to flash a plastic card and get something. This forces you to plan to bring the cash with you, which means it’s premeditated spending. Fewer impulse buys!

  3. It feels good. My wife and I have different priorities, but as long as we knew our allowance was our own I was free to buy expensive craft beer with my share and never feel guilty.

  4. As your income goes up you increase your automatic investing. This stops lifestyle creep and will get you in the 20%+ savings rate quicker than other people taking their pay raise to the car dealership.

When I’ve told people about this method a few questions always come up:

What about if I don’t have enough money left over ever because my house/car/funko collection is too expensive?

This is why they’re called “fixed” expenses. You can always move, sell the car or stop buying stuff you don’t need. The reality is that we don’t deserve anything. If you can’t afford the two bedroom condo in the desirable neighborhood then you have to find a smaller place. Or get rid of the car and start biking.

I hate cash, can I use a credit card?

It won’t work as well. But if you can’t fathom putting a few $20’s in your pocked then call up your bank and limit the credit card to your monthly allowance. And be super careful, keep an eye on your spending.

I ran out of money before the month was done, what do I do?

Sell stuff. Get creative. Revel in the pain and swear that next month you won’t go overboard. If it happens more than once you likely need to change one of your “fixed” expenses.

This month is a busy one with two weddings, can I borrow from next month?

Um… No. But you can borrow from the previous month if you have cash left over…

I need a new car, can…?

No you don’t.

We need a bigger house, can…?

No you don’t.

I think you get the point. But the real power in this is the system of it. It’s not a goal to only spend $50 on eating out. It’s a system that automatically invests, takes care of your fixed expenses and leaves you with only the remaining cash. And that’s important because some months you’ll want to eat out more and some months you may want to spend a bit more on something else. Our wants change so our budget has to be flexible. And it also makes us aware that every purchase we make is with disposable income, not our entire paycheck as our fixed expenses are typically a large part of that.

So try it out if you’re not up for a more detailed budget approach.

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