What is the bare-bones budget?
The bare-bones budget is designed by Better Budget to help you get started with finances. With it, you can set up a solid budget that's extremely easy to maintain and understand. Your budget will be divided into three categories: Bills, Spending, and Savings. You'll setup a budget following best practices and even start to grow a savings! Read the steps below to get started!
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I'll help you set up your bare-bones budget for free! I recommend doing this if you don't like math or find it overwhelming. I also recommend it if you're having a hard time getting through the steps below.
I just need a few things to get started...
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Steps to the bare-bones budget
1. Open two checking accounts and a savings
The first step is to simply have two checking accounts and one savings account. It's not required, but you'll see later how much easier it is if you have the three. Eventually, you'll have just the accounts you need, but that's for more advance budgeting methods. For now, we're keeping it easy and simple. We just want you to get you started with budgeting.
2. Add up all your bills
Add together all the bills you're required to pay per month. Netflix, Spotify, rent, electric, water, student loan payments, credit card payments, etc. I want you to find every thing you pay for per month. Then, add it all together. Here's an example:
3. Figure out a savings goal
A savings goal will be a percentage. You'll hear many different recommendations, ranging from 10%-50% of your take home pay. We'll be taking a percentage of your after-bills (the required payments from step 2) pay, so you can take a little bit of a higher percentage and still be okay. Something normal would be like 15%, 20%, or 25%.
4. Calculate your percentages
This will probably be the most math you have to do. You may have not realized it, but you just divided your paycheck into three categories: Bills, Savings, and Spending. Now, we have to figure out the percentage of your paycheck for each category. Don't worry, I'll walk you through it and if you still need help, just message me. I highlighted the formulas in blue below.
I know the math can be difficult. Just message me for help, if you need it. Math comes easy to me, so I'm confident I can figure out your numbers in only a few minutes.
Let's call our friend Joe.
5. The hard math is over, finishing things up
You will now have three important numbers, your Bills Percentage, Savings Percentage, and Spending Percentage. Remember the 2 checking accounts and the savings account you had from step 1? This is how it maps....
Joe get's paid $1400 from his bi-weekly paycheck.
6. Keep up with it
This budget is called bare-bones because it's made to be not complicated. The math might have seemed hard, but keeping up with it is simple and easy. You just repeat step 5 every time you get paid. Then, simply use checking 1 for all your bills and checking 2 for any spending. If you do this, you're practicing budgeting and on your way to becoming a budgeting expert!
For this budget to work, pay your bills from Checking 1 (i.e. your bills checking) and spend from Checking 2 (i.e. your spending checking). If you don't follow this, you'll make keeping up with the budget harder for yourself!
I'm really happy with how this post turned out. Again, I'll help you get started with your budget if you just message me. I only need a few details to get started on your awesome bare-bones budget! Thanks for reading the Better Budget blog.
Update: As you probably can see, I updated the style to the blog. Let me know what you think! This is only temporary, as I'm working on a Better Budget website now, which will give it an even newer, sleeker look. We've also started social media accounts! You can follow us on Instagram @BetterBudgetCo. You can also find the direct link to our accounts on the right. More social media accounts to come!
When someone says “I did my finances,” for a long time I had no idea what they meant. Did they balance their checkbook? Or perhaps they paid some bills. I would say in general this is what it meant. Years ago, it was balancing a checkbook or paying some bills. But today, I think “I did my finances” has an aged connotation and is begging for some modernization. I’m going to redefine it for the more technological, modern world we live in today.
“Doing your finances” means you took some time to know how much money you have. This is so much more than simply looking at your bank account amounts. If you’ve been reading Better Budget at all, you should understand now the importance of a budget. If you haven’t been reading it, well budget is in the name…so, it’s pretty important. When you do your finances, it’s really keeping your budget up-to-date. Keeping your budget up-to-date takes often work, but it literally pays off. The better you are with your budget, the more money you have in your pocket.
So, what does "I did my finances" mean for me? I use the envelope budgeting system and it’s pretty manual. When a transaction comes in my bank account, I also record it in the envelop budgeting app I have. So, doing my finances is pretty much syncing my bank account transaction list with my envelop budgeting transaction list. After this is done, I know exactly how much I have in each envelope. For example, if I had a $40 gas purchase in my bank account, I would then record a $40 gas purchase in my envelope budgeting app. Recording it in the app also requires me to take it out of an envelope. So, if I had $50 in the gas envelope, I would take $40 out of it. Now I know how much money I have, e.g. $10 left in gas.
Knowing how much money you have, or “Doing your finances”, also includes updating your budget when you get paid. I do my budget cycles weekly, which I highly recommend. So, every Friday (actually today after this blog post) I refresh my envelopes. I add the weekly budgeted amount to the appropriate envelopes. Then, if I have any extra money left over (say my wife worked some extra hours or we under-spent in an envelope), I then allocate the extra. I first allocate it to envelopes that we over spent, which is usually the coffee budget. If all those envelopes are good, then I’ll give my wife and I some extra spending money, invest it, or simply save it.
How often should you do your finances? I would recommend every 2-3 days, or after a lot of purchases. It takes me 10-15 minutes to completely go through my finances. The more often you do your finances, the less time it will take you to complete your finances for two reasons. 1) You get better at it, so you’ll finish it quicker. 2) You won’t have as much finances to review (e.g. if you do it every week, you’ll have a week of finances to review, versus just a day or two). If you have a big shopping day, I would go home that evening and do your finances. I always do our finances after going to the mall and buying a lot of things for two reasons. 1) To know if we overspent in any envelopes and return items if so. 2) To know how much left we have to spend.
So, “Doing your finances” means you took some time to know how much money you have and you do your finances every 2-3 days. Simple.
Thanks for reading the Better Budget blog! Doing your finances is tough, but it’s something you can create a habit of. Once it’s a habit, it’s easy. If you need help getting started with your finances, don’t be afraid to reach out to me. I’m here to help!
I was thinking today, what financial methodology do I want Better Budget to have? Well, I think I've figured it out. The Better Budget methodology has one simple goal, to make the best decision where the outcome results in the biggest gain. Simply put, what decision will make the most money. It might seem like any other financial methodology, but there are a few more things that set Better Budget apart.
Better Budget is not a static plan. It's fluid and adapts to each person's situation. Consider paying off debt and you'll find several different strategies. I don't teach that one strategy is the one you must take, rather I analyze your situation and make a recommendation. If you struggled with finding motivation, I'd recommend the snowball method to pay off debt. If you're really driven, I would recommend the avalanche method to pay off your debt. This is a simple example and I would consider so many more aspects, but it illustrates the point. Better Budget methodology is a plan for you. It's a plan that adapts and will be different from person to person, but the underlying goal remains the same... to make the best decision where the outcome results in the biggest gain.
There's more. I want Better Budget's methodology to focus on averages and never speculate. Have you ever heard of the saying that history is the best predictor of the future? Well, this is another aspect that drives Better Budget. When I'm trying to figure out the best decision for a certain financial situation, I always use averages. For example, the average home value growth in the United States is roughly 3%. So, what is my home worth in 30 years? Using a compound interest calculator, my home would be worth about double what it is today. I don't take the best case scenario, nor do I take the worst case. I make a decision based on the average, then adjust for any differences that come.
Of course you'll find, Better Budget Plan is no more than a methodology at this point. I have a goal to someday write a book, outlining the plan. But for now, I would like to just simply help you go through the plan that I have gone through myself, because I promise you, it works. It's worked for me and my friends and it can work for you too. If you're interest in trying out the Better Budget Plan, please contact me! I'll help you get started for free. I just want to help!
On the first of every month, I calculate my net worth. It gives me an idea of how well I did financially for a given month, because I can compare this month's net worth to last month's. I can also use it to compare it to the national average for my age. Coming from the Unites States Census Bureau and adjusted for inflation, the average net worth for a particular age is...
Step 1: Update your finances
The first thing I do before starting my calculation is getting my finances up to date. I manually update my budget, pay off any outstanding credit cards, and allocate money for the next month (if it falls on the right day of the week). You don't have to do this step to calculate your finances, but I recommend you do.
Step 2: Add up all your assets
You want to next add up all your assets. Examples of assets are...
Checking and Savings accounts: I simply open my online banking account and add the numbers I see. For me, I only use one bank so all my checking and savings accounts are on the same page. For you, they might be through different banks. Regardless, don't do anything fancy. Don't try to add pending money. Just simply grab the number you see after you login.
Investment accounts: Just like the checking and savings account, simply open your investment account(s) and add the first number you see. If you're doing it during the day and the number might be changing, just use the first number you see when you login.
Vehicles: I use Kelley Blue Book to get the value of my vehicles. I bookmark the page for each of my vehicles. It doesn't matter what estimate you use, as long as you're consistent from month to month. I use the median trade-in value, which is a low estimate. But, I would rather estimate low and end up with a higher net worth, rather than the opposite.
Home: I think Redfin gives the best estimate for a home. I have found that it is the closest to what a real appraisal ends up being. Just search your address and you can see your Redfin Estimate at the top of the page.
Step 3: Add your debt
Add together all your outstanding debt, i.e. the money you still owe. For most debts, you can look on the website to see how much money you still owe. If for some reason you're not sure how to find this number, you can always calculate it too by using a monthly amortization calculator. To use a monthly amortization calculator, you'll need to know your original loan terms. Also, add in any credit card debt you haven't paid off yet.
While this isn't exactly debt, I would also add tithe money or money you've set aside to donate. This money might be technically be part of your net worth, but I always add it with my debt. I don't want it to be added into my net worth, since I know I'm going to be giving it away. In a lot of cases, I should have already given it away and have forgotten to.
Step 4: Subtract your debt from assets... assets - debt = net worth
Now you're ready to calculate your net worth. Simply subtract your debt from your assets, i.e. assets - debt = net worth. In other words, subtract the number you got from step 3 from the number you got from step 2, i.e. step 2 - step 3 = net worth.
This number could be anything. It's very possible it could be negative too and for a lot of people it will be. This simply means you owe more money than what you're worth and you should prioritize your debt strategy.
Step 5: Analyze and repeat
Now you have your net worth! Record your net worth. I keep mine in a spreadsheet. I'll send you the one I use. Just message me and I'll email it to you! So now that you have your net worth, analyze it. Are you happy with it? Is it negative? What is it compared to last month (if you have last month's)? What do you want it to be at next month? How about at the end of the year? Why did my net worth go down this month? Or go up this month?
These are all questions I ask after calculating my net worth. For example, my net worth went down by about 28% in December. Very alarming at first, but then I realized I had just paid all the fees associated with buying a home and bought Christmas gifts for my family. The next month, I was able to calculate my net worth with the home and got a paycheck from some freelance work I did during the fall, which I usually use for Christmas. It went up 17%. The next month, it increased 16% and I was back to normal.
Lastly, make sure you calculate your net worth on the first of every month. If you miss the first, just do it as close as possible. There's been times I've calculated it on the 4th. It doesn't give perfect numbers, but it's still a good estimate for the month. I set a reminder in my phone to calculate my net worth on the first of every month.
A note to married couples
Always calculate your net worth as a couple. Don't calculate two separate values, i.e. a net worth for you and a net worth for your spouse. You're one and your finances should be too. If you have your finances completely separate, I recommend joint bank accounts and to start treating your finances as one.
Thanks again for reading Better Budget. I hope this helped you learn about the value of knowing your net worth and taught you how to calculate it easily. If I could have explained it any better, please let me know! As always, I hope this has helped your personal finance journey improve and ask me any questions you may have.
A couple months ago, my budget was set up on a bi-monthly schedule, which was aligned with my paychecks. It was easy to budget each bi-month and I could allocate leftover money easily. However, I never had much leftover money. Actually, most bi-months, I was negative. To understand how I was negative, you first need to know my wife and I use the envelope budgeting method. For those of you who already know what the envelope budgeting method is, skip the next paragraph. Otherwise, read on!
The envelope budget system derives from the way grandma used to do her budget. She would get $100 every bi-month. Then, allocate $20 for groceries, $40 for bills, $30 for savings, and $10 for tithing. Each dollar is physically placed in four different envelopes: groceries, bills, savings, and tithing. Then, when it came time to pay for something, she would take the envelope with her. For example, she would take the grocery envelope with her to the grocery store and leave the rest at home. That's essentially the envelope budgeting method. I follow the same method, but instead of physical cash, I do everything electronically.
With us being negative quite often in our envelopes, I had to find a solution, because it made things stressful. If we overspent even $5, then we felt defeated. It wasn't us being hard on ourselves, because we knew that $5 adds up quickly. I have hundreds of virtual envelopes. If I overspend $5 in even 20% my envelopes, then we're hurting financially that bi-month. It's hard to be perfect every month with our budget and I had to figure out a way that I could give my wife and I a little bit of a buffer.
When my wife got a new job, this was the opportunity I needed to implement my new idea to help us with overspending in envelopes. I called this the "disposable income" envelope and it has been the solution to our problems. Every budget cycle, I put $50 in this disposable income envelope. What this does for us, is give us a little bit of a buffer from cycle to cycle.
For example, this cycle we drove a little more than normal and had to fill up on gas twice. Typically, this would hurt us and we would have to pull money from our savings (thus, our savings never grew). But now, this doesn't hurt us. We use some our disposable income to set our gas envelope back to full during the next budget cycle.
Another advantage to having a disposable income envelope is that it gives a fresh start every cycle. Now, we're still strict with it. If we overspent in our spending envelopes, we don't use the disposable income for a fresh start. I have a soft rule that if I can get it refilled over the next couple cycles, then I won't use my disposable income for it. For example, if my gas envelope was negative, I probably won't be able to refill it over the next couple cycles, because we're constantly driving to and from work, needing gas. However, if my spending envelope was negative, I could go a couple cycles until it was refilled. Plus, I need to learn from overspending, so it would be good if I didn't spend for a little bit.
The amount of disposable income you need each cycle is dependent on your budget. If you implement a disposable income folder and find yourself constantly using all, if not more, of what you have, that indicates that something is wrong with your budget. You need to reevaluate your numbers and adjust where needed. I also think it takes a good bit of self discipline to not overspend, knowing that the disposable income is there to catch you. That will defeat the purpose of a disposable income.
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My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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