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Use Subtraction to Simplify Your Budget

March 9, 2011 Leave a comment

Have you ever been overwhelmed by  all the options that exist to manage your money?  There are a lot of programs and spreadsheets and some of they can be overwhelming.  Sometimes you really just need to simplify things.

I recently learned of an app that simplifies budgeting.  It’s called “Left to Spend” and it helps you keep track of what you spend on a daily basis.  It helps you decide how much you can afford to spend each day, it allows you to record amounts you spend as you go about your day and then it lets you know how much you have left to spend.  It’s so simple!

I love this idea but unfortunately I’m have an Android and this app is only for iPhones.   Also, it costs $0.99 and I generally don’t pay for apps.  But that’s okay!  You really don’t need an app for this.  I manage my money this way everyday.   And while I would love to have an app for it, pen and paper work just fine.

First, decide how much you can afford to spend each month by taking your monthly income and subtracting out all the fixed expenses (housing expenses, utilities, gym, car insurance, cable, etc.).  Include a category for savings to make sure you pay yourself first.  Take the rest and divide it by 4 and this will give you an amount that you can afford to spend each week.  Once you know how much you can afford to spend each week, subtract your expenditures as you go through your week.

Example:  If I make $2000 per month and my fixed expenses are $1000,  I have $1000 left to spend for the month.  If I divide that by 4, I have $250 to spend each week.  If I spend $20 on Sunday, then I have $230 for the rest of the week.  If I spend $30 on Monday, I have $200 for the rest of the week, and so on and so forth.

Why do I use this method?  Because it means that I don’t need to set aside money in specific spending categories.  Some weeks I like to take my lunch to work but other weeks I get really busy and enjoy eating at some of the local restaurants.  I can change my mind from week to week and spend money in different places.  It’s okay as long as I don’t go over the weekly amount.  Once I spend that money, it’s gone.

Give this method a try and see if it works for you!

Categories: Budgeting, Saving Tags: , ,