One-Number Approach to Budgeting
If you find budgeting too confusing, chances are you won’t see it through from day to day. The principle of the One-Number approach to budgeting is to first cover all the essentials, and then spend whatever is left over in any way you want. Here are the basic steps to implement a one-number budget.
Cover the “fixed” monthly costs
This should include your rent, utilities, any monthly installments, monthly transportation costs, childcare, and monthly groceries.
Cover also the essential non-monthly expenses like insurance, tuition fees, and car or house maintenance so you won’t be caught off guard and forced to get into debt.
Set financial goals
You should treat these goals as if they were as important as your utilities. It could be setting aside money to get out of debt, pay off a student loan, save up for retirement, or set up an emergency fund.
Once you’ve covered the first two essentials, you may spend what remains of your income for your day to day expenses. This includes your food and entertainment expenses. On some weeks you may eat out more, or on some weeks you may pack your own lunch to save up for a new gadget that you really want.
An effective budget should not be too complicated or confusing. The ultimate goal is to manage your expenses while achieving financial goals and staying clear of debt. We hope this one-number approach to budgeting may help you achieve this goal.
To know more about this approach to budgeting, click here.