Bubbles! Everybody loves bubbles! In addition to being a fun summertime tradition, bubbles are also extremely helpful for visualizing how you are allocating your money each month. So, yes, this is a post about budgeting. But with lots of pretty pictures to make it entertaining! Because I like to do nothing, most of my financial strategies are designed to require as little decisionmaking as possible. Decisions! Ugh. I have to make enough of them every day with three little minions who ask questions every 30 seconds and a job that requires me to problem solve all day long. Decision fatigue is real, people.
On the spectrum of budgeters, I fall somewhere in the middle of the extremes of “budgets are a total waste of time because I examine every single purchase for maximum value” and “every expense and every item of income must be accounted for!” Generally, the latter is royally time consuming, and the former seems to deprive me of valuable information about my financial condition. Budgets should enable you, not take up your whole day. I usually spend about 20 minutes a month looking at our budget.
Why Design a Budget?
Budgets are for automation. A good budget allows you to stretch your time horizon months and years into the future, empowering you to dramatically reduce expenses. By not getting stuck in the weeds of each bill as it pops up, it’s easier to see the big picture, anticipate what’s coming, and have the money at the ready. A crappy budget just tries to set arbitrary amounts for all kinds of expenses, usually based on some kind of wishful thinking. These budgets inevitably fail because they function just as well as their design: arbitrarily. Without the background work of whittling away at desire itself so that you can see abundance even when you’re not buying much at all, any frugal budget is doomed.
To make a budget basically automatic, you need to know what your expenses are. That begins with tracking them for a few months. Every time you notice yourself spending money in a new category, you add it to the list. After a full year of doing this we have these categories:
After you recover from staring at that boring list of expenses and numbers, notice how these are separated into “fixed” and “variable” expenses. This distinction helps us keep track of things we must pay for every month and those that we can cut back on when/if necessary. Yes, there’s lots of debt here—that’s why we are working to eliminate $248k of it in just five years.* We’ve also included a column for how much we’re likely to spend on a particular item in a year. We do this so that if we get some unexpected money, we can see where we might allocate it quickly to cover expenses we know are coming, and thus free up cash flow for other purposes.
Spreadsheets are great, but looking at cell after cell can be quite tedious. That’s why using charts to help you visualize the numbers can be very useful. Here’s what our budget looks like in a packed bubble chart:
Ah, now isn’t that easier to see what’s really going on here? Look at those frighteningly large debt bubbles ready to explode all over everything! Gah! (Kind of like the housing and tech bubbles of yore—and tomorrow?)
Getting this kind of visual really helps me put things in perspective about where the money is going each month and motivates me to smash debt with a sledgehammer. If you find yourself thinking, “where did it all go??” then try creating a visual to help you see it. The above chart was made using Tableau, which is free for basic purposes and works easily with excel and Google Sheets. Numbers only take me so far.
But once you have a budget, how do you keep track of how much money you have left in it? Back in the good old days, many people would use pencil and paper to create separate “accounts” within their checking account, and keep track of how much money they had in each “account.” This painstaking process had to be repeated each month for each expense, and may have caused more than several divorces. Another way is to take cash and put it in separate envelopes labeled with each budget item. Then you only spend for that particular category of expense from that envelope. But who wants to fumble around with a bunch of different envelopes and potentially quite a bit of cash?
Correlating Expenses to Your Budget
Luckily much easier ways are now available to keep track of this information. We use Simple, an online bank that has a feature called “goals” which allows you to create digital envelopes to put money in. When you spend money, you can spend it from a goal, so it’s incredibly easy to keep track of. Here’s what the goals look like:
Then Simple shows you a balance of what it calls “Safe-to-Spend”, which excludes any money you’ve placed in a goal. It makes it pretty easy to keep track of. We also know people who are using You Need A Budget, which does something very similar but by linking to your checking accounts and importing all your transactions. It also encourages you to get at least a month ahead of your expenses, giving you a big safety net should you suddenly not have a paycheck. If you’re willing to spring for the $5/month or $50/year, don’t want to open a new bank account, and would like a little extra support developing a budget, this might be a good option for you.
One final thought on the allocation of money. Many of the goals you make will not get used up each month. Note that the “Phone” goal above has $39.94 leftover this month. Two options here. If it is a fixed expense that for some reason was lower than expected (as was the case here), then just fill the goal back up to what you need for the next month. If it’s a variable expense that was just lower this month, then still contribute the full monthly amount to that goal, as variable expenses by definition are higher in some months. This technique helps you build up a buffer against the higher months. If your goal is getting really inflated, consider lowering your contribution amount and reallocating that money elsewhere in your budget.
Timing Payments in Your Budget
This final budget hack is what really made things easy and automatic for us. Because most bills have a 20-30 day lead time, it’s possible to time when you pay them around your paychecks/income so that you have basically an even flow of money going out instead of devastating waves that seem to come up unexpectedly. For a long time it always seemed like the beginning of the month was hard and the second half was easy. But after rearranging when I pay bills based on my cash flow, everything seems smooth. All you have to do is allocate money for the next round of bills every time you get paid. Here’s how we set this up:
As you can see, the bills are staggered to make the total amount for each pay period almost identical—a difference of less than $70. Most small bills can be set up to be paid through a high rewards credit card (we use Costco’s card currently). Because the credit card cycle allows for as much as 30–60 days* between when a purchase as made and when it must be paid for, it’s pretty easy to stagger the bills this way. For the student loans, we split up how much we contribute to the goal each pay period to even things out. You could do this with any of the larger bills provided you get a little bit ahead on your budgeting, which is easy to do using the methods above.
What about you? What budget hacks do you use to keep things automatic and easy? Please share in the comments!