This Is The Easiest Budget You’ll Ever Use!
You don’t need 25 budget categories in order to reach your financial goals. That’s right, despite what you may have seen online, you can save money and pay off debt with just 3 budget categories.
I personally find budgets with more than 3 categories to be restrictive and overwhelming. The 3 category budget has helped me buy my first house at 25, have a healthy savings account and travel regularly!
Having more than 3 categories can lead to fatigue and disenchantment with the budgeting process. It can lead to you to losing track of your spending and then constantly playing catch up. If you don’t enjoy combing through your spending every week or month, the 3 category budget might be for you.
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Intuitive Spending
Have you heard of “intuitive eating”? It’s something that a lot of health and wellness influencers preach. It’s a method of eating healthy without counting calories and restricting yourself from cheat meals. You eat what you believe your body needs.
Health and wellness takes time to incorporate into your life, but once it becomes a habit, it’s hard to quit. I believe the same to be true about budgeting. It will take time to build one that truly works for you, and the only way to get there is through trial and error.
A few years ago I had a monthly fitness trainer who had me track my eating as well as my fitness progress. It ended up taking a toll on me because I became obsessed with my progress. I tracked everything and only ate what I thought would provide the best results. As soon as I left that gym, I realized I’m a lot happier and healthier eating and working out intuitively.
The same can be said about spending money. You should know how to live within your means and not overextend yourself. You don’t need to check your spending every single week to see if you went over budget. It’s restricting and will take a toll on you.
Keep in mind, personal finance is personal, so if that type of budgeting system works for you, then by all means stick with it! But, if you find it cumbersome and overwhelming, try the 3 category approach.
How To Start Any Budget
Before you jump into determining your categories, you first have to audit your spending! There’s no way you’ll know what your monthly expenditures are if you do not review your bank statements.
So, grab some wine and highlighters and print out your last 3 months bank statements (from all of your bank accounts). As you comb through each bank statement, you’ll start recognizing common patterns and this will provide clarity on how to create your budget!
You’ll soon realize that all of the expenses can be separated into 3 simple categories. If you decide you need more, then by all means go for it! Budgeting is personal and customizable to your needs.
WHY YOU NEED THE 3 BUDGET SYSTEM
When you have a laundry list of categories, it can become difficult to recognize how to adjust your budget. The fewer categories you have, the clearer the picture can become. If you’re not meeting your financial goals, you need to start with looking at the “Spending” category first! Everything that falls into the “spending” category can be adjusted.
This 3 category budget allows for a more fluid and intuitive approach to your expenses.
The 3 Budget Categories You Need
I follow a lot of successful financial bloggers and I watch them meticulously pick through their budgets every single day. I used to think that I didn’t have a real budget because I approached my finances differently. But guess what? There’s no wrong way to budget. As long as you’re achieving your financial goals then you are doing what works for you.
You don’t have to have 25 different categories and worry about overspending in each one. You only really need 3 categories – bills, savings, and spending!
The 3 category budget has worked for me and it’s how I will continue to allocate my finances.
Category 1 – Bills
This is by far going to be your largest category. This should include all of your necessities and regular bills. Most likely, you’ll be able to set these on auto-pay which will make your budgeting even easier!
Some of the most common items that are in the bills category are:
- Rent/mortgage
- Car insurance
- Cellphone bill
- Internet bill
- Utilities
- Paying off debt, student loans, car loans, etc.
These categories are the easiest to budget for. They are essential and should be taken care of first. Next up is the savings category- how much should you save every month?
Category 2- Savings
Aim to save at least 20% of your monthly income. Whether it goes towards your emergency fund, sinking funds, retirement, or saving for a down payment, set a goal that is sustainable and achievable.
If you’re having trouble figuring out what you need to prioritize saving for, here’s what you should do with your next paycheck based on your financial situation. Once you’ve established what to save for, you can set a financial goal and adjust your budget appropriately!
The easiest way to ensure you save every month is by setting an automatic withdrawal to your savings account.
Category 3- Spending
Your remaining money will go towards your spending! This category includes things like subscriptions, gym, groceries, restaurants, birthday presents, and gas. You don’t have to spend all of this money either, if you have some left over, transfer it to your savings!
If you have trouble with overspending, put away your credit cards and use a preloaded Visa gift card. Look into other cashless budgeting methods or the cash envelope method as well. Once you develop a feel for what you should be spending, you can rethink going back to using your credit cards!
Final Thoughts
The important thing to note here is you have to find what method works for you. Review your current spending habits, determine your financial goals, and decide what methods would be in-line with your personality and lifestyle.