We know: Nobody likes to budget.
That might be because your budget probably looks something like a Jeopardy! board: dozens of categories with individual numbers assigned to them. Movies for $25. Groceries for $100, please.
Sometimes, though, going into that much detail doesn’t help you see the forest for the trees—and could feel a bit restricting for the less detail-oriented among us. What if we told you there may be a better way—an alternative that helps you know whether you've got room in your budget to splurge on dinner out, while still making sure you're taking your financial goals into account?
Enter the One-Number Strategy, a simpler budgeting framework that our Planners at LearnVest recommend, which works like this: Pay yourself first, then spend what’s left over—guilt-free. It all starts with dividing your monthly take-home pay into four categories—fixed costs, financial goals, non-monthly expenses and flexible spending. Your flexible spending amount becomes your one, easy-to-follow number. Ready? We'll explain.
An Easier Way to Categorize Spending
Here are the four buckets of expenses within the One-Number Strategy.
1. Fixed costs. So what are fixed costs? These are the essential bills that don't tend to change from month to month, like your mortgage or rent, as well as any regularly recurring payments, like subscription services.
Your fixed costs list may include:
• Cell phone bill
• Gym membership
• Fixed transportation/commuting costs (like monthly public transportation)
• Child care
2. Financial goals. Your goals can include anything from paying down student loans to saving up for a house down payment. At LearnVest, we believe there are three essential goals everyone should include in their budget to ensure a strong financial foundation: building an emergency fund, saving for retirement and paying down credit card debt.
Your financial goals may include:
• Paying down credit card debt
• Building an emergency fund
• Paying off student loans
• After-paycheck retirement contributions
• Saving for a big vacation
• Saving for a down payment on a house
One quick note about retirement: This budget category includes contributions you make after you get your take-home pay—so something like transfers you make to an IRA from your checking account, rather than 401(k) contributions that are deducted straight from your paycheck.
For those who do have access to a 401(k), this can be a great way to save for retirement because you may be able to take advantage of a company match, if your employer offers one. If you're contributing to retirement with pre-paycheck contributions, then congratulations—you're working on making progress toward your retirement goals by keeping that money out of sight, out of mind!
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