How To Start A Budget for Beginners

3 min read

What if I told you, not to track where your money goes each month?

And what if I said, there was a way to manage monthly expenses without extensive oversight?

If I made those claims, I’d be right. There is a system that pays you first. And automates your bills.

Let me tell you about the lazy man’s budget. The perfect method for beginners.

THE LAZY MAN’S BUDGET

Budgeting doesn’t have to be hard. But you can make it that way.

Start by paying yourself first. It’s easy to set up. You just need two bank accounts.

Set Up Your Bank Accounts

The budgeting method I recommend requires two bank accounts:

1. A checking account at your local bank
2. A high-interest online savings account

Your monthly bills and spending money will be deposited in the local checking account. And your emergency fund will be deposited in your high-interest online savings account.

The benefits of this are twofold. You create the habit of paying yourself first. And you limit access to your savings account. The limits are set organically because transfers out of the online bank account take 2-3 days. While transfers into the online savings account happen instantly.

To find the perfect banks for this set up, I recommend three criteria:

1. Zero fees
2. ATM access
3. Competitive interest rates

I prefer to use small local banks or credit unions for the checking account. The customer service is better. They have lower fees. And they often have high interest checking accounts. My local credit union still offers 1.50 % on checking accounts if you meet the minimum monthly requirements.

For online savings accounts, I only consider the banks with the highest interest rates. We want to earn as much money as we can. There’s no need to settle for poor earnings when geography doesn’t limit your choice.

Beware the Website

While you’re looking, investigate the website’s navigation thoroughly. Every transaction will occur through the web interface. So, if you don’t like something during the sign-up process, move on. Little annoyances turn into big headaches when you bank online.

Set Limits on Your Spending

To use the two-account system, you need to set limits on your monthly spending. I like to determine my spending limits by setting a yearly savings goal first. If you don’t want to pull a number from thin air, use a 6-month emergency fund as your goal amount. Note that the emergency fund is 6 months of expenses, not 6 months of income.

The rest of your monthly income will go to expenses and spending money.

Automate Your Savings

Now we need to take willpower out of the equation. Once you have your bank accounts, you need to set up direct deposit.

There are only two steps to get this right:

1. Calculate the amount of savings needed from each paycheck
2. Enter this amount in payroll system

And our budget is done.

Boost Your Results

Unless you have a large expense coming up, there is no need to save more than 6 months’ worth of expenses. If you’re trying to do that, you don’t need an emergency fund. You need another stream of income.

An easy way to start building that second income stream is through an index fund portfolio. This investment style is passive. It allows you to focus on getting promotions at your main job. While building an asset that will provide for you.

The best time to get started is after your emergency fund is complete. Once that’s done, you’ll open your brokerage account. I recommend choosing an online broker with the lowest fees. This will likely lead you to Fidelity, Scotttrade, and Vanguard.

Now that you have a brokerage account, your money will work harder. The funds will earn 8-12% interest compared to the 2% in your savings account. And this will build your early retirement nest egg in no time.

Yes. Stocks are more volatile. But don’t worry about that. You’ve got your emergency fund. And, you can ride out any bumps that come your way.

You’ll Never Worry About Money Again

Don’t be that guy that’s always trying to save more money. Set a savings goal and stick to it. Then, have your savings automatically taken out of your check.

Using the lazy man’s budget will help you never worry about money again.

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