The Easiest Ways to Set a Simple Budget, And Stick to It

Think about the amount of time you spend commuting to work. What about the times you spend thinking about your office work. What about your colleagues; some who you hate spending your days with? What about your ‘horrible’ boss? What about that sales target or deadline you have to hit?

Now, think about the reasons why you do all these? Essentially, you do all these because you want a better life for you and your family. You are not alone.

We all want the same things in life. Happy families, good health, and excellent emotional well-being. That is the reason why we struggle every day.

Now, after making your money, you want to enjoy it in peace. Sadly, most Americans are not achieving this. Recent studies show that while wages in America are improving, albeit slowly, many people are still living paycheck to paycheck. Statistics also show that more than 43 million of Americans are in food stamps. All this is a clear indication of a population that is struggling.
To achieve financial freedom no matter the amount of money you make, budgeting is very important. On paper, this topic seems easy but in the real world, it is really tough.

How many times have you created a budget only to forget about it within days? I believe that we have all been through this process in the past.

In this article, I will explain a few tips on how I achieved the goal of creating a budget and sticking with it.

You want to be this happy. Right?

Start with your net income

The first step is to forget your gross income and focus on the net income. The net income is simply the amount of money that you get after all the deductions. If you work only one job, then this is the amount you should put down. If you have other side jobs like freelancing, you should also include the net amount you get in this part.

Set a Budget Plan

Many budget plans have been developed but the one I really like (and use) is the 50/30/20 budget. In this plan, you allocate your money in three ways. The first 50% of your net income goes to the necessities, while the 30% goes to wants, and the rest goes to savings and debt repayment.

Needs

Necessities are the things you must use every month. They include items like rent, food, school fees for your children, transport, and utilities like internet and cable TV.
Since necessities are your biggest income-spenders, I recommend that you only opt for things you can afford or those that are reasonably priced.

For example, you don’t need to live in a fancy 3-bedroom apartment if you are just two family members. You don’t have to pay the top-tier cable service if you don’t watch all the TV channels. You don’t need to drive to work every day if an Uber is cheaper. Also, you don’t have to pay for the fastest internet subscription if you don’t use internet as much. While you love your children a lot, you don’t have to take them to the most expensive school, in the neighborhood.

Simple tweaks like that will save you a lot of money in the long term.

Wants

Wants are simply the things you can do without. For example, we all love going out to dinner or ordering a meal kit service. Also, most of us have a desire to drink a good bottle of wine. We also love going out to a trip.

There is nothing wrong in indulging in such activities. In fact, since you are the one who works so hard to make the money, you need to enjoy it.

The caveat is this. Your wants should always be 20% (or less) of your net income. Overspending on the wants has led many people – like Johnny Depp – to struggle financially later in their lives.

Savings and debt repayments

“A simple fact that is hard to learn is that the time to save money is when you have some.” -Joe Moore

Finally, the remaining 30% should go to savings and servicing of the debt.

Like I mentioned, most Americans are living from paycheck to paycheck which makes it hard for them to save money. If you follow this plan, this should never be the case.

If like me you have debts – like mortgages and car loans – you should pay for them using the remaining 30% of your income. On debts, always consider the following:

• Always, check for loans with the lowest interest rates.
• Always check for the small hidden charges in these loans.
• Always pay them on time. This will help you improve your credit rating.

After paying the debt, you should save the rest of the money. When saving, you should consider saving for the short term and saving for the retirement. This is because you want to be financially secure now, and also when you retire.

When saving for retirement, you should ensure that you start early in life. The chart below provides a better explanation on why starting early will always pay off.

When saving, I recommend that you set some money aside for emergencies. Think about this. What would you do if your home was affected by the recent hurricanes or the California fires? An emergency fund can help you in this.

The Hard Part

Now that you have created a budget, the hard part will be sticking with it. This will not be easy. Believe me. I have been there before.

A few tips will help you achieve this.

1. Always record your transactions. A good way to achieve this is by using mobile apps like Mint and Personal Capital that track your spending and present your income and expenses in a dashboard.
2. Always assess your spending on a regular basis. This could be weekly, monthly, quarterly, or even annually.
3. Always remember to unsubscribe to services you don’t need. If you no longer care about Wall Street Journal, Netflix, Plated, and Adobe, just unsubscribe from their services.
4. If need be, please talk to a certified financial planner who will provide you with a roadmap to achieve your financial goals.
5. Have a person to check up on you. This could be your wife, sibling, or a close friend.

The goal of a budget is not to make you live a dull life. Its goal is not to restrict you from having fun and enjoying your money. Its goal is to give you a holistic and long-term view about your financial health. In fact, you will have a tough future if you ignore the three parts of the budget.