Want to learn a simple way to budget that you can do it less than an hour a month?
A budget will set you free. It gives you a roadmap to live your ideal life that is adaptable to your changing life.
Unfortunately, most people make budgeting too complicated and give up.
The 50/30/20 rule will allow you to enjoy life, meet your needs, and pay your future self
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The reasons people fail at budgeting:
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Too restrictive
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Do not align spending with values
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Do not pay their future self first
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Do not have an easy to apply system
The 50/30/20 system will give you a quick guide to make sure you are enjoying life, meeting your needs, and setting your future self-up for success
Here is how:
Step 1: Track expenses for 3 months
The most important step is being aware of where your money is going.
You cannot change what you don’t know.
Two options:
- Look back at 3 months of expenses if it is easy
- Track for 3 months going forward
This does not have to be fancy; paper and pencil or excel sheet works just fine
I use You Need a Budget (YNAB). It takes some setup, but once done will make tracking expenses quick.
Tracking has led to many cancelled recurring expenses in our household.
This is not about cutting or being restrictive; it is about spending intentionally.
Step 2: Categorize your expenses as a NEED or a WANT
What is a NEED? Ask yourself four questions to decide:
- Is my survival dependent on it?
- Will my health suffer if I don’t have it?
- Can I wait for it?
- What happens if I don’t have it?
A list of common NEEDS:
- Food
- Shelter
- Basic Clothing
- Utilities
- Health Care
- Transportation
- Insurance
- Debt Payment
A list of common WANTS:
- Entertainment
- Dining Out
- Travel
- Hobbies
- Desinger Clothes
- Luxary Cars
- Brand New Cars
A category can be both a NEED and a WANT
We all NEED food, but eating out five days a week is a (WANT)
Most of us NEED a car, but a brand new $80K luxury car is a (WANT); while a quality used vehicle is a (NEED)
We all NEED shelter, but a million-dollar home is a WANT
Step 3: Does your spending pass the 50/30/20 test?
This is of NET INCOME (Income after taxes have been taken out)
Ask yourself THREE questions
- Did I save at least 20% to LONG TERM SAVINGS?
- Did I spend more than 50% on NEEDS
- Did I spend more than 30% on WANTS
These questions, a little organization, and a few months of practice should allow you budget in under an hour a month.
You Need a Budget (YNAB) can make this process simple and quick
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The more you put toward LONG TERM SAVINGS the quicker you will reach financial freedom.
What This Means to You
The reason we sacrifice our time for money should be to buy freedom and spend according to our values.
Tracking your expenses brings clarity. It allows you to spend on WANTS guilt free. It helps you cut expenses or find alternative ways to spend less when the spending is not adding value to your life.
Budgeting this way leads to increased happiness, freedom, and a sense of control in your life.
It ensures that you are taking care of your future self.
The Bottom Line
Learning how to budget and looking at expenses does not have to be restrtictive.
Budgeting helps me enjoy spending money. For example:
We love going to KU basketball games. I was born in Kansas and I am a lifelong fan. It is very expensive, but I have zero guilt because we have a great time and have life long memories. We save well over 20% of our NET INCOME so I don't worry.
I suggest making a list of WANTS and enjoy something every month
What are some of your WANTS?
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