By: Austin Colby, CFP®, MBA
It’s a new year and a great time to review the family budget for 2018. Let’s keep it simple with budgeting for a minute. Budgeting can be overwhelming, but that is NOT an excuse to ignore it.
G. S. S. = Give. Save. Spend.
Those are three broad categories that have several sub-categories. However, start with those three categories and set your target percentages or ratios for those three areas. This works for everyone because everyone makes the same amount of money: 100%. We all make 100% of what we make. The dollar amounts may be different, but if we all start at 100% then using ratios makes it very simple to set goals and track progress.
Begin with a goal in each category; for example 10% Give /15% Save /75% Spend.
Here’s a tip: you can automate two of those three things each month. You can set up automatic transfers for giving and saving each month.
If you make $5,000/month, then you can automatically give $500 (10%) and automatically save $750 (15%). The balance is $3,750. That is what you can spend.
Make sure you start with a target bank balance. If you establish that you never want your bank balance to fall below $5,000, then at the end of each month review where it is. If it is consistently above $5,000, increase your giving or saving. If it is falling below $5,000, do NOT decrease giving or saving. Rather, start digging into your sub-categories under Spend to try and determine why you can’t live on 75% of your income.
Perhaps your debt payments are too high, or your housing costs are too high, or you like Chipotle too much. If you can’t make the 10/15/75 ratios work, and that is your goal, that’s when you need to get into the details.
Start simple. G. S. S. If you’ve never given before or saved before, begin with a goal of 1/1/98. Increase those first two numbers on a regularly scheduled basis. Pretty soon, you will be living on less, saving more, and all the while being more productive with your dollars.
FOCUS: What is your G.S.S.? Where would you like it to be?