I love simplicity! Anything I can do to improve processes, reduce errors, and just make my life easier, then I’m on board. This is probably why I put my household chores on a weekly schedule and meal plan like a boss. It’s no different when it comes to our household finances. When things are simple and I can easily check tasks off my ever-growing list, I’m a much better (and much nicer) wife, mom, and friend. And this isn’t some recent, amazing discovery. This is just what simply works for me and hopefully, they can work for you too.
Most people hate budgeting and I completely understand why! It can be overwhelming when you’re trying to figure out the best way to divvy up your income, pay all of your bills in a timely manner, and save for the future. We follow the 50/20/30 budgeting method. While there is a little bit of upfront work, it has made our lives so much easier. This is an overview: 50% of your net income should go towards your needs like food, housing, transportation and childcare; 20% should go towards your financial goals whether that means saving, paying down debt, or building an emergency fund; and 30% is for you to spend on discretionary items such as dining out, entertainment, or clothing.
We have three checking accounts set up for these designated categories and split up our incomes accordingly (many employers will allow you to split up your direct deposit as well). Now, this method accomplishes a few things. It allows you to pay yourself first! It ensures you don’t overspend and have money left over to pay your bills. It gives you peace of mind because you know exactly how much you have to spend freely.
We just talked about automating your income into the 3 budgeting categories but what else can you automate? Nowadays, pretty much everything. From our needs checking, we use our bank’s bill-pay feature where I have entered every single person/company/organization that we send money. From our financial goals checking, I have automatic transfers set up to go to high-interest savings accounts and investment accounts, and from our discretionary checking, my husband and I have a debit card that we use for our everyday spending. No credit cards, no arguing about who spent the grocery money, just easy, breezy automation!
Track Your Net Worth
Cash flow is the backbone of any solid financial plan. When you’re paying your bills on time, getting your spending under control, and automatically putting money aside towards your financial goals, you’re going to see progress begin to happen. I use technology to keep tabs on our net worth which aggregates data from the financial institutions we use. The big thing here, make sure it’s growing! How fast your net worth grows is really up to you. However, the more progress you see, the more excited you are going to be about making positive changes. By tracking your net worth weekly (which really means just logging in and looking around to make sure everything looks right), you will always know where you stand. Use the same software I use in my planning practice HERE, to begin tracking your net worth!
Things to Keep in Mind
Many people ask me about the savings category since the income you receive is net income. Typically, your retirement contributions have already been taken out. To this I say, continue to aim for 20% of your net income above and beyond your contribution to your employer’s plan. Another common question is tithing. Where does tithing fall into all of this? For my family personally, this goes into our needs but I will say this is a personal choice and obviously depends on your beliefs and your current financial situation. And finally, if you can’t quite get the figures right and are skewed from the recommended percentages of 50/20/30, this is where you begin to take steps to bring yourself back into balance. Maybe cut back on your grocery spending or your cell phone usage, maybe you need to find ways to increase your income. Again, this is how I simplify and maybe they will work for you too.