Customized Your Budget to Fit “You”
The standard approach to building a household budget is fairly simple: Know how much income you have available to spend each month, determine how much money goes into each spending category (groceries, utilities, housing and so on) and then track these categories regularly to make sure you’re not overspending in one place. When all’s said and done, you should have your expenses covered each month without racking up any debt — hopefully with a little money left over to put into savings.
That’s all well and good, except when the details of your budget get too complicated. Does each family member need a clothing category in the budget, or can you lump everyone’s clothing expenses into a single bucket? Should you separate the non-food items you buy at the grocery store into their own sundries category, or is that over-complicating things?
There’s a lot to be said for simplicity, especially when it comes to your household budget. Micromanaging your money can get messy, and if you’re not careful, you’ll wind up driving yourself crazy. Try these three solutions for simplifying your budget:
The 60 percent plan. One simple approach is to break spending into only five categories. Necessary expenses, such as your mortgage, groceries and insurance, automatically get 60 percent of the family’s take-home pay each month. The remaining 40 percent is broken up into four equal budget categories:
- Long-term savings for big goals (other than retirement) that require some planning
- Short-term savings for more erratic expenses, such as gifts and repairs
- Fun activities, such as dinners out and movies
The 80-20 plan. Another way to simplify your budget involves depositing the first 20 percent of your take-home pay into an investment account — the “don’t touch it account.” Stash the other 80 percent in a checking account. That’s the amount you have to spend every month on your regular purchases — groceries, water and electric bills, gas for your car, lunch money and everything else. Under the 80-20 plan, you don’t need to divide the money up into categories. However, the clincher is that when the money runs out, you’re done spending for the month, which can take some getting used to.
The balanced money plan. The idea behind this budgeting concept is that you’ll stay on target if you simply separate your spending into just three “big picture” categories: 50 percent for needs, 30 percent for wants and 20 percent for savings. If you look at your spending and see, for instance, that you’re dedicating a whopping 70 percent of your income to shelter, food, utilities and other needs, your budget is out of whack and something else (likely your savings) is probably getting shorted each month.
If you want a little more structure in your financial life — but don’t want to overcomplicate the budgeting process — give these approaches a try. One of them might be just enough to get your spending back on track.