Do Things You Enjoy
By COURTNEY JESPERSEN
Reporting for jury duty. Standing in line at the DMV. Going to the dentist. Making a budget.
What do all of these have in common? They’re activities you’d probably like to skip.
And while budgeting certainly isn’t exciting, breaking down your spending can give you the ability to do things you enjoy.
Here’s how to leave room for more than just bills in 2020. (These simple tips spell F-U-N.)
FIND YOUR 50/30/20 BALANCE
There are countless budgeting techniques out there, but one is particularly effective and easy to remember.
It’s called the 50/30/20 budget. This plan accounts for typical general expenses like your mortgage, rent, car payment and utility bills, as well as individualized discretionary spending such as travel, streaming services and more.
Here’s the gist: Start with your take-home pay. Commit no more than 50% of that figure to needs and fixed expenses, like your mortgage. Use 20% for savings and debt repayment. The remaining 30% can be spent on wants and variable expenses. A 50/30/20 budget calculator will do the monthly math for you.
Katie Brewer, certified financial planner at Your Richest Life, likes the flexibility of this method.
“It’s a lot less restrictive than $200 in this category, $300 in this and $127.50 in this one,” Brewer says.
It’s also freeing to know that this method allows you to spend money on things that are important to you, your family and your lifestyle.
“I really like for people to go through and tell me the top two things they really like to spend money on,” Brewer says. “Sometimes with a couple, those might be slightly different. We try to always have those be a priority in their spending plan.”
Your current spending percentages probably aren’t at exactly 50%, 30% and 20%. You’ll want to slowly modify until you get close to these levels.
UNDERSTAND YOUR MONEY FLOW
Once you have an idea of your recommended spending, start tracking.
“Have your bills account and your spending account,” Brewer says. “There’s no cheating that. Whatever is in there is in there.”
Divide your money appropriately between them when it first hits your bank account, she suggests.
Robert Lopez, CFP and founder of financial planning company FP Guidance, advocates a similar strategy. While some people may prefer to keep everything in one place, he says separate accounts can be helpful — especially if you name them. You can even create different accounts for different financial goals you have at the same time.
For example, if you call one account your “honeymoon fund,” you may be less inclined to pull money from it than if it were just an undesignated savings account.
But don’t stop there. Implement more methods to ensure you’re not spending your mortgage money on subscription boxes.
Lopez recommends getting a different-looking (9) card for each one of your accounts, if your bank offers that option. So, for instance, your grocery shopping card might be red, but your entertainment card would be blue. Depending on which card you use, you’ll be pulling money from the appropriate category.
Then, you can check your bank’s app to see where you stand.
NEVER STOP TRYING
Remember that having a wants category in your budget isn’t an excuse to spend money on vacations or shopping sprees just because. Rather, Lopez says, it’s like a cheat day — a way to keep yourself motivated to follow the rest of your budgeting habits.
“If your whole budget is just things that you need and then paying down debt or investing … you’re never going to have any fun, and you’re not going to stick to it,” he says. “You’re going to break that budget.”
Your budget will be a work in progress, and that’s OK. Your spending in some months may be higher than during others. You’ll probably spend more on gifts in December than in March, for example.
Brewer recommends starting to pay for your variable expenses with a debit card so you can be proactive (rather than reactive) about your spending. Once you get the hang of it, you can switch back to using a credit card. Lopez says cash can be helpful, too. If you bring only $50 to a concert, for instance, that’s all you’ll be able to spend on merchandise and refreshments.
Find the method that works for you. As he puts it, a budget is something to grow with.
“If someone can build a perfect budget in January, they are in the wrong profession.”
Courtney Jespersen is a writer at NerdWallet. Email: email@example.com.