by Amy Shepard, CFP®, RMA®, BFA™, MBA
One of my favorite topics is how to simplify budgeting using a "One Number" budget. The basic concept is to pay yourself first and then spend what's left by having a weekly number that you stick to for ALL spending - no tracking various categories. It's a great approach for those who want some structure but don't want the tedious task of tracking every dollar.
The process of developing your One Number budget is outlined below.
- Start with your monthly take-home pay.
- Subtract out all of your recurring monthly bills - mortgage, utilities, cell phone, subscriptions, loans, charity, etc.
- Next, subtract out "non-monthly expenses" - these are things that come up throughout the year but are not due each month - insurance premiums, gifts, annual subscriptions like Amazon Prime, travel, etc. You add them all up and divide by 12 so that you can allocate a monthly amount to these expenses.
- Next, subtract out contributions to your goals such as funding retirement, building an emergency fund, and paying extra toward debt.
- What's left over is the amount you can spend guilt-free each month on everything else. Because it's a monthly number, you can divide it by 4.3 (the average number of weeks each month) and that gives you your weekly "One Number."
Some important tips and considerations with the One Number approach:
- Don't be afraid to make adjustments. If you go through all the previous steps and realize it only leaves you with minimal spending money, it may not be realistic to stick to it. So, go back and change things - see if you can reduce or eliminate any monthly expenses. Consider reducing some of your goals so that you are leaving yourself enough to be successful each week.
- Use multiple bank accounts -
- I like having 2 checking accounts.
- One is where all my paychecks get deposited and all my bills get paid from.
- The second checking account is for my "One Number" - I set up an automatic weekly transfer from the "Bills" account into the "Spend" account. That way I always know exactly what is available to be spent each week. If I don't spend it all, it stays in there and can create a buffer for future weeks. I only carry the debit card tied to the Spend account
- I also like having multiple savings accounts so it's easy to see what money is available for what purpose. Personally, I have 4 savings accounts - Emergency Fund, Gifts & Travel, Insurance, and Surprises. I set up my "non-monthly" savings to get automatically transferred from my "Bills" checking account into its respective savings account
- Online banks are usually best because they allow you to open multiple accounts without fees or balance minimums. I personally like Ally Bank but have also heard good things about Capital One, Discover, PNC.
- Plan your spending wisely. For me, I replenish my "Spend" account every Saturday. Then I immediately do the things I know I need to spend money on - buy groceries, fill up my gas tank, etc. Once those essentials are taken care of, I know that whatever is left is my "Spend" account for the week can be used on whatever I want - going out to eat, buying something for my home, entertainment, etc.
About the author: Amy Shepard, CFP®, RMA®, BFA™, MBA
Amy Shepard, CFP®, RMA®, BFA™, MBA is a Financial Planner at Sensible Money. She has been working with clients since 2013 and loves helping them create and implement a financial plan so they can achieve their life goals. She is involved in the CFP Boards Mentor Program and previously served on the board of the FPA of Greater Phoenix. Outside of work she enjoys spending time with her husband and kids – they have a goal to take a family picture in all 50 states!
More on Retirement Daily