CHARLOTTE, N.C. — Most financial experts agree that a budget is necessary in order to reach retirement. But when you research online how to make one, most of the methods are highly administrative and feel like drudgery. On Tuesday's show, our guest money coach, Bernadette Joy showed us how she streamlined her budget down to three main categories, that helped her and her husband pay off $300,000 in debt and save enough for retirement in their 30s.
“Budgeting is not just for tracking expenses” says Joy. She adds “When I teach financial education, most students are confused when I tell them not to spend too much time tracking their expenses.” The perception and therefore the aversion to keeping a consistent budget every month is it requires you to track every expense and record them along the way. Recording those expenses would be similar to writing down the times you plan to brush your teeth or take a shower — it’s just checking things off a list that creates extra administrative work, but not a change in behavior. “Instead, I learned that by having a spending plan at the beginning of every month based on the zero-based budget, I had a clear allocation for all of my income to be spent” says Joy. There’s no need to track many of the expenses after pre-planning because they would be paid no matter what such as, housing, utilities, car payments and other recurring bills.
There should be only 3 category names on your budget based on how you live.
They are :
Budget 1: Survive — basic necessities including housing, utilities, transportation, food and health.
Budget 2: Revive — current expenses that aren’t necessary but make life worth living like eating out with friends, vacations, clothing, entertainment and hobbies
Budget 3: Strive — anything that was helping you grow your overall net worth like emergency savings, debt payments, investing and expenses for my business
These 3 broader categories will help you stay motivated, rather than beating you up when you make mistakes in your budget. By grouping line items together underneath these three larger categories, you will feel less overwhelmed. It will give you more flexibility to exchange spending among different items within each category. For example, within the Revive category, if you spend more money than you intended on eating out; subsequently, you would consciously lower how much you spend spent on clothing to maintain the intended amount within Revive. If you’re a recovering perfectionist who felt discouraged by your budget in the past, this method can help motivate you. It does take some time getting used to a new skill, so give yourself three to six months to get consistent with budgeting. Even if you don’t get it perfect every month, you’ll make more progress in your financial goals if you at least make a plan with good intentions. For more information visit crushyourmoneygoals.com/freeguide and pick up a free guide.