Let’s dive into why budgeting can be so hard, and figure out a few ways to make budgets stick.
Why are budgets difficult?
What makes budgeting every dollar into a category difficult? For one, when you make your category budgets, you probably aren’t looking at how you’ve been spending your money the past few months. If you have a Simple account, which auto-categorizes each transaction, it’s fairly easy to see what your spending habits really look like. While at first seeing your true spending habits might be an uncomfortable reality to face, it can be a great tool to keep your spending in check and help you make projections for future months.
Another reason budgeting every dollar into a category is difficult is because a one-time budget is often not flexible enough from month to month. Some budget experts recommend you make a new budget each month. As much as I think about money and how to spend it and save it, if I’m being real with myself, I know making a new budget each month is not something I’d realistically stick to. I’d probably default to using last month’s budget to make this month’s budget, break my own budget rules because they weren’t flexible enough, and then let my budget fall by the wayside altogether, and then feel bad about it.
A third reason diligently budgeting every dollar into a category monthly is difficult is because it’s hard to track and stick to over time. Why? Because willpower is a limited resource that gets fatigued with overuse, just like a muscle. The more you can set up systems that don’t rely on pure willpower and that work with you instead of against you, the easier it is, and the higher the chance you’ll stick with those systems.
So what have we learned here? Budgets that categorize every dollar are difficult to make realistic, not very flexible, and hard to stick to. That being said, there are people out there who have set and committed to categorized budgets, but it’s likely these people are few and far between. Luckily, there is a realistic, flexible, and low-maintenance way to manage your money. Ensuring all those factors are in place will increase your likelihood that you’ll continue to manage your money consistently over time.
Match your money management to your money mindset
Instead of forcing your mind to adapt to a strict budget, you can start with a minimalist budget that matches how you already think about your money. Here’s how it’s done:
Income – basic expenses = Safe-to-Spend
Basic expenses = rent + bills + minimum loan payments
Simple has an account feature called Goals, which makes setting this up very easy. When your account has no Goals and is one pot of money, like a typical checking account, the total amount of money you have in your bank account shows up as your “Safe-to-Spend.” In your account, you can then create a Goal for each basic expense you need to cover monthly. Each Goal will draw money out of your Safe-to-Spend.
Using the Safe-to-Spend and Goals features is like an electronic version of old-school envelope budgeting. For instance, if you have $3,000 in your Simple account and you make a Goal called “Rent” for $500, your Safe-to-Spend will drop from $3,000 to $2,500, and you will see the Rent Goal below with $500 in it, like an electronic envelope.
If you set up a few Goals for things you are committed to paying for, such as rent, bills, and minimum loan payments, your Simple account will be doing the work your mind used to do for you. For example, if you wanted to splurge on a present or a nice dinner for a loved one’s birthday, your mind will begin asking some questions like, “If I buy that, will I have enough money left to cover my rent, bills, and loans?” or “How much can I afford to buy, and still cover my rent, bills, and loans?” By making your Safe-to-Spend in your Simple account match the Safe-to-Spend in your mind and life, it’s easy to manage your money.
Up the ante by setting more Goals
Once you have monthly necessary payments made into Goals, you can start making new Goals. Want to add groceries? Look in your activity history to see how much you spent on groceries in past months, and make a groceries Goal. Want to buy some new sandals for summer? Make a sandals Goal. Watching your Safe-to-Spend rise and thinking about making a larger loan payment this month? Make a bonus loan payment Goal. Each Goal will reduce your Safe-to-Spend so that you’ll know how much money is truly safe to spend. You can then spend from your Goals while maintaining your Safe-to-Spend number.
Save-It-Now or Save-Over-Time
My favorite thing about Simple Goals is that you have two ways to set them up: You can save it now, or save over time. Save-It-Now pulls the entire Goal amount out of your Safe-to-Spend right when you make the Goal. This is good for basic expenses like rent in the example above. Save-Over-Time pulls incremental amounts of money out of your Safe-to-Spend daily by having you set a Goal amount and a due date.
For example, if you wanted to build up a savings of $1,000 over the next 100 days, your Save-Over-Time Goal will automatically pull $10/day every day from your Safe-to-Spend. Before you know it, you’ll have $1,000 in savings. You can then pause the Goal if things are getting tight, or add an extra lump-sum amount if your Safe-to-Spend is growing. You can even change the due date to make it sooner or later, which will make the amount of money added to the Goal each day larger or smaller, respectively. These features make it easy to manage your money with flexibility, and with little effort. Using Safe-to-Spend and Goals with the Save-it-Now or Save-Over-Time options makes managing your money realistic, easy to stick to, and flexible.
Set up your money management system
Now that you have a handle on how Simple’s Safe-to-Spend and Goals features work and why they are an amazingly easy and effective way to manage your money, let’s recap how to set this up:
- Set up a Simple Account, if you don’t already have one.
- Make your basic expenses Goals with Save-It-Now. Try making Goals for rent, bills, and loan payments at the minimum. Maybe add one for “food,” or two for “groceries” and “eating out.” For Goals that may fluctuate from month to month, like your electricity bill and food, always estimate on the high end. Stick with these basic Goals for a couple of weeks, and get in the habit of checking your Safe-to-Spend number when buying things.
- After you’ve spent a couple of weeks getting used to spending from your Goals and your Safe-to-Spend, try setting up a Save-Over-Time Goal, or Account Buffer Goal. An Account Buffer is one to two weeks of your income saved up in your account that will protect you from things like bounced payments and an overdraft on your account. As you are setting up your Account Buffer Goal, you can play around with the Goal due date to find a realistic daily savings amount.
- Now that you’ve covered your basic expenses and started saving a little bit every day, you can make fun Goals! Start saving over time for a vacation, a puppy, or raising bees. Watch your Safe-to-Spend number to keep your fun Goals in check.
- Adjust Goals where necessary. If you know you’ll spend more money eating out this month because an out-of-town friend is in town, you can adjust your food Goal. If you are in between jobs or get a raise, you can pause or expedite your Goals as needed.
If you’ve got that “I-want-to-take-control-of-my-money!” burst of energy, use it now to start the above steps. Once you have those set up, you won’t need to rely on your limited willpower to keep up with managing your money wisely. Just check your app every once in a while to see your Safe-to-Spend, make adjustments to your Goals where you see fit based on what’s happening in your life, and watch your Save-Over-Time Goals grow on autopilot. You’ll be glad you did.
Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor The Bancorp Bank, our partner bank, endorses any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.