A Simple 3-Step Budget That Can Change Your Life

Budgets are like training wheels: They help you get moving and offer you confidence as you learn how to balance.

I wish I could come up with a better word than “budget” for managing money. While I’ve made peace with the word, it still conjures up synonyms like whip, drudgery and cruel master. Personally, I prefer the more elegant term “spending plan,” but for now, because budget is so universally understood, let’s just go with it, all preconceived notions aside.

No Budget Is Fail-Proof

Search “how to budget” and you’ll get a list of options a mile long. While there are many ways to budget, none is perfect. A budget is a tool you develop to fit your lifestyle. There is no single, guaranteed budget method, form or spreadsheet.

Even a template or financial software that fits your temperament and lifestyle is not guaranteed to change your life any more than a power tool sitting on the garage shelf will not put together that new wall unit for you while you kick back and play on your phone. You have to do the work.

Budgets are extraordinarily useful, a lot like training wheels. They can help you get going and give you confidence as you learn to balance. There may come a time that you’ll become an expert “cyclist” and outgrow your need for the training wheels — or you may want to leave them on for confidence and security should you hit a bump in the road.

No One-Size-Fits-All

There are probably as many ways to budget and different kinds of templates, forms and budgeting software out there as there are financial temperaments. And rarely do those kinds of fill-in-the-blank templates work because all of those categories, percentages and preloaded numbers reflect someone else’s situation, income and lifestyle. That makes them doomed to fail in most situations.

The only way a budget will ever work for you is if it reflects you. The categories and numbers in those categories must match how you live your life.

Budget Of Choice

Of course, I am referring to my choice, but I’m confident this simple three-step budget can work for anyone in just about any situation.

Step No. 1: Create Categories

Start with the obvious ones like housing, food and gasoline. Expand your categories to reflect your life.

Step No. 2: Give Every Dollar A Job To Do

Look at your paycheck or another source of income. Your job is to manage that money — every single dollar. You do that by giving every dollar a job to do. You do that by spending your entire paycheck on paper before really spending any of it. Think of yourself as the boss, and those dollars are your employees. A good manager knows where the money is supposed to go and then follows through to ensure every dollar went where it was supposed to. That’s a budget.

Step No. 3: Every Month Starts Over At $0

Call it a zero-balance budget. It means that since every dollar has a job to do, at the end of the month, every dollar should have done its job and been spent, saved or otherwise set aside by moving it out of the checking account. Theoretically, that brings your household bank account to $0. And if, for some reason, you didn’t budget exactly right, and the account has some money left in it, decide ahead of time where to move it so that the balance does return to $0.

A budget where you 1) create your categories 2) pre-spend every dollar by assigning it a job to do and then supervising with a careful eye to make sure they do as told and 3) starts over at $0 every month is a budget that will push you to develop new habits and routines.