When someone says the word “Budget” do you think of negative connotations of restrictions, and a lot of work? A budget does not have to be either hard or restrictive. Instead of a budget, let’s call it spending goals. Here’s the story of one person who made his spending goals very simple.
Three buckets
I met this fellow a few years ago and he surprised me by telling me that he didn’t have a credit card. It wasn’t due to poor credit. He was just being smart and didn’t want to get into debt early in life. Here’s his method, which seemed like a pretty good start for someone in their 20s. When he gets paid, he puts aside his income into three buckets. The first is what he needs for monthly expenses (i.e. rent, cellphone, etc.). The second he gets as cash for disposable spending. The third consists of the rest which he puts into savings. He has a debit card which he uses for expenses that need a card, and all online purchases are made with gift cards that he purchases to use with websites. The rest of the things he buys, he pays cash for. I let him know that with those skills he was well on his way to being a millionaire in 30-40 years.
My commentary on this would be that he is doing a wonderful job at paying himself (savings), and using cash for most purchases, since people who pay cash tend to spend less than people who use cards. My only suggestion might be that he might want to get a credit card with a lower credit limit so that he can start to establish a credit history. If he does that, he’ll want to make sure that any balance is paid in full when the statement arrives.
My own method was to make sure that I had the money already in my checking account before I made a purchase with the credit card. That checking account money was “reserved” for the credit card bill and already considered spent. Otherwise, his mentality of the buckets of savings, cash, and monthly expenses is a great first start at budgeting one’s money and a good habit to get into at an early age. Spending goals can get as complicated as you wish, but this is a great example of how to create a simple budget.
Just get started
You might say that this sounds like a lot of work. Instead, I’ll just get one of those money management apps and just connect all my accounts and let it do all the work. That is great in theory, but it is actually quite a bit of work to set them up because of all the little buckets they want to put expenses into. Instead, my friend’s method of deciding how much of his paycheck to put into each bucket was much easier. Ready to get started? Drop me an email or DM and let me know how it went.