We all hate the word budget, right? When someone tells you to budget your finances, that equates to doing without, not having what you want when you want. We are here to tell you that does not have to be the case. We are going to show you how you can be more minimalist on a budget and still have what matters most to you.
I am a tiny house fan. I watch shows where people go from living in a home with over 3,000 square feet to making it all work in a space with less than 900 square feet. You can do the same with your budget and not miss out on a single thing.
Make a List of All Income Avenues
The first thing you need to do is figure out where your money is coming from. Gather your bank statements, and if you use other payment systems like PayPal, Stripe, etc. for online goods that you sell, gather your income statements from there. We suggest having at least the last 6 months on hand to give you a starting point to figure out your general income each month.
If you are a blogger, you may have multiple avenues of income such as guest posting, affiliate sales, ad revenue, etc. If you are a DIY person, you may have an online store where you sell your projects or services. If you love to renovate flea market finds and re-sell them, include that income as well.
Understand What Your Financial Values and Priorities Are
Before we begin working on a budget, you need to identify your financial values and priorities. Which is more important to you? Going out with your friends every Friday night or going home for the holidays? Car insurance or a new outfit? That Starbucks coffee every morning or that family vacation you’ve been promising the kids?
When you have a clear reason for budgeting, it makes staying on task easier and gives you a purpose and a reason to say no to something in exchange for something else. Having a clear family financial value system helps to show your children how to develop their financial value system. If you aren’t sure of yours, here is a quick quiz you can take to help you determine your family’s financial value system.
Make a List of All Expenses
There are two types of expenses, fixed expenses, and variable expenses. Here are examples of both. Fixed expenses include the following:
- Student loan payments
- Auto loan payments
- Auto insurance premiums
- Utility payments
- Electricity payment
- Internet bill
- Phone bill
- Monthly parking payment
Your fixed expenses will be about the same each month. However, your variable expenses and discretionary spending is where you should be looking to cut back. Here are a few examples of places in your budget where you can cut down on spending and these are considered variable expenses:
- Eating out
- Entertainment expenses
Eliminate Expenses That Aren’t Important
Take a bit of time to think about what you’re spending and the areas where you might be spending too much. Anything that’s low on your list of priorities needs to be cut so that you can keep taking care of those high priorities. Setting priorities is all about finding the balance.
Use the 50/30/20 Method to Budget
The 50/30/20 budget rule is simply this – 50% of your budget from your after-tax income should be spent on needs – the bills that you absolutely must pay and are things necessary for survival. These include rent/mortgage, car payments, groceries, health care, insurance, utilities.
A good rule of thumb is that 50% of your after-tax income should be sufficient to cover your needs and obligations. If you are spending more than that – perhaps downsizing your lifestyle by moving to a smaller home, take public transportation to work, cook at home more often, etc.
30% of your budget can be allocated to the “wants” category. These are things you want but don’t need to survive, such as having HBO, Netflix, Starbucks, or dining out. Basically anything in the wants area of your budget is optional.
Work out at home instead of going to the gym, cook at home instead of going out, watch sports on TV instead of getting tickets to the game. Buy an economical car over a costly BMW. Use an antenna to watch local television and a streaming service like Hulu for about $30 a month over a cable TV service that will cost you well over $100 a month.
To put it plainly, the wants are all the extras you spend money on that make life more enjoyable and entertaining, but aren’t necessary.
20% of your net income should be allocated to your savings and investments. This is where you allocate money to an emergency fund in your bank savings, make contributions to an IRA or a mutual fund, invest in the stock market. You should have at minimum three months’ salary in your emergency savings in case you lose your job or an unforeseen event occurs. Once you have that amount in your savings – then focus on retirement accounts and other financial goals you might have.
If emergency funds are ever used, the first allocation of additional income should be to replenish the emergency fund account.
Automate Your Payments
If you don’t see it – you won’t spend it. Make life as simple as possible by automating your payments for fixed expenses. If you don’t want to give a company access to pull funds from your account each month, set up an account that is just to pay bills. When your income arrives in your main account, transfer the amount you need to pay bills to the other account, and 20% to your savings account. If you don’t see it in your checking account, you won’t miss it, right?
Get Rid of the Monthly Payments For Unnecessary Items
Although Netflix or Hulu are awesome time-fillers, you don’t really need them. Considering using an app like Trim to find all your recurring subscription costs and then eliminate the ones you don’t need or use. Maybe you have a monthly gym membership – but if you never find yourself at the gym, it’s a good idea just to cancel it.
Instead, consider doing free at-home exercises like yoga at home or riding a bike outside.
Question Every Expense
The key to funding an aspirational lifestyle on a realistic budget is cutting unnecessary daily spending, allowing you to splurge occasionally on a little bit of luxury when it really counts. Think about your day-to-day budget. Is there something (or perhaps there are several things) that you buy every day but hardly notice the benefit of? Your morning coffee, for example. Is that café-grade coffee really improving your day? Likewise, if you’re driving to work and paying for parking, is this convenience worth it when you could take the bus and save money on your daily commute?
Taken on their own, these daily luxuries may not seem to cost much, and you might be reluctant to part with them. But once your habits change, you probably won’t miss them. What’s more, your savings will very quickly add up.
Spend Less Than You Earn
Whether or not you practice minimalism with your physical belongings, a minimalist budget can be a great choice for anyone! Minimalist budgeting is all about eliminating the non-essentials from your budget to make room for the things that you value most.
While budgets often feel restrictive, the minimalist budget is all about freedom — Freedom to spend on the things you truly value without letting the less important expenses get in the way.