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Post written by Leo Babauta.
I havent written about finances in awhile, because these days I barely think about them.
Thats because for several years, I focused on getting out of debt and these days, I live completely debt-free and worry little about finances. Its a beautiful thing.
However, recently a reader asked me to write about Simple Budgeting, and so I thought Id revisit the topic. Ill talk about how I deal with finances these days, and then a Simple Budgeting method for those who arent exactly debt-free yet.
How I Deal with Finances
As I said, these days my finances barely register on my brain. Now that Im out of debt, its not a major issue for me, and Ive automated most of my finances.
Heres what I do:
1. Income is streamed into my checking account automatically. My income is all electronic, so I never deal with checks. In a couple cases Ive purposely set up electronic payments when previously I was sent checks.
2. Savings & investments are automatically taken from the checking. If its not automatic, I might forget about it. Forgetting about it is a good thing when its automatic though I will check every few months and see how my savings and investments have grown.
3. I often make major payments all at once in the beginning of the year. Because Ive been able to grow my savings account, now that I have zero debt payments, I have a good cushion so that I can pay things like rent or other major expenses all at once in the beginning of the year. This way I dont worry about the payments each month, and I dont spend money I might need for these payments.
4. Other bill payments are made automatically. If I dont pay in one big lump sum, Ill set up automatic monthly payments. I never worry about paying bills. I just make sure there is enough in my checking account at all times to cover the total amount of my bills.
5. I leave a cushion in the checking for unexpected expenses. And once the bills, savings and investments are taken care of, whats left is basically groceries and other living expenses. I dont spend all of whats left, because other things will inevitably come up, and having a cushion means I dont have to worry about these things. Building up a cushion took me time after I eliminated debt, I just continued to spend little so that I could build up savings and a cushion in my checking account.
And thats about it. I dont budget anymore, because everything is automatic. I am not quite as frugal as I was when I was getting out of debt, but thats the freedom of living debt-free you dont worry about that stuff as much.
Simple Budgeting
If youre a bit lost when it comes to budgeting, its not that hard. You just need to sit down and do it, and not put it off. Here are the steps Id recommend:
1. First make a few lists. Lists are easy. The lists you need: list all your monthly income amounts (estimate an average if you have irregular income); list all your mandatory payments (like rent, auto, power, groceries); list debt payments. See how much (if any) you have left over if there isnt much, see the next step.
2. Simplify. See what mandatory payments you can eliminate. This might take time, but many things are optional. For example, I eliminated cable TV, magazine subscriptions, a car payment (going from two cars to one), and more. Also, see what discretionary spending you can eliminate while youre trying to reduce debt Starbucks coffee, eating out a lot, buying magazines or comics, etc.
3. Make savings and debt payments first, each payday. Make that mandatory, even if theyre small at first ($50 each maybe). Try to increase them as you continue to simplify.
4. Make mandatory payments next. Rent, car, utilities, etc. Make them automatic if possible, but if not go online and pay them right away each payday.
5. Whats left over is spending cash. Maybe its for groceries, gas, and fun money (eating out, etc.). If you have difficulty not spending your grocery and gas money so that they last for two weeks, put the amounts you think youll need in separate envelopes one for gas, one for groceries, one for fun money.
6. Long-term moves. Over the long term, you want to decrease and even eliminate debt, one debt at a time. This will free up a lot of your money. You also want to start saving for an emergency fund immediately, and build it up over time. This is crucial, as without even a small emergency fund youll never smooth out the bumps that inevitably come up. Increase income if possible while youre getting out of debt. And when youre out of debt, start investing in index mutual funds (Vanguard 500, for example) to grow your money over the long term.
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Simple Ways to Be More with Less
Id like to share with you a little but beautiful ebook written by a friend, Courtney Carver. Courtney blogs about simplicity at Be More With Less, and inspires many with her story.
In her new ebook, Simple Ways to Be More with Less, Courtney shares not only her best writings on creating a simple life and living life on purpose but she has some great chapters from other simplicity authors like Tammy Strobel, Joshua Becker, and myself.
Its a book for anyone interested in living a simpler, more meaningful life.
Simple Ways to Be More with Less
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