If you’re like most of the population, you’ve probably felt stressed about money at some point in your life. If not, get out of here, we’re not talking to you. Go compare money-filled swimming pools with Bill Morneau or something. If you have felt stressed about money, one financial planner and author may have cracked this whole “budgeting” thing wide open. Shannon Lee Simmons says the best way to ease the anxiety associated with your budget is just to nix the budget. That may sound a little crazy, but allow us to elaborate.
All you need is four categories
You might have always been taught to break down your whole paycheck into micro-categories to construct your budget — this much for coffee, this much for groceries, etc. In Worry-Free Money, Simmons writes that organizing a budget that way might look good on paper, but the moment you overspend somewhere, you’re thrown into a stressful cycle of trying to figure out what category you can borrow money from to get back on track. That whole process can leave you feeling guilty and overwhelmed by your finances. You don’t need that in your life.
Simmons suggests that instead of a detailed breakdown of where every nickle is going, all you need is four categories: fixed expenses (mortgage, car payments, hydro), meaningful savings (debts, retirement, vacations), short-term savings (appliance upgrades, emergencies) and spending money.
When you get your paycheck, you take out the money for the first three categories and you don’t touch it. The money that falls into the “spending money” category is for you to use over the pay-period until it reaches zero. This way, you’re not borrowing from different categories, trying to make things work; you know how much money you have and you can spend all of it.
That’s a hard limit
The real trick to this budgeting technique is that you need to make that “spending money” a hard limit. There’s no borrowing from the other three categories. Ideally, you never even see that money. You still need to be smart and careful with your finances, but you may feel more in control knowing that everything left in your bank account can be spent this pay-period (assuming you put the money for the other categories in a different one).
Prioritize so you’re ‘happy spending’
When you’re deciding what to spend your money on, Simmons emphasizes the importance of choosing things that make you happy. For example: we’re always told that it’s cheaper and healthier to pack your own lunch for work but some people just hate packing and eating a bagged lunch. If you’re one of those people who prefers getting lunch out, Simmons says don’t force yourself to buy the groceries required to make a bagged lunch. Buy it and save the money somewhere else. It’s your money, prioritize your spending so it’s on things that make you happy.