Money & Milestones

Do you want to count pennies (Abe), or the hundred dollar bills (Benjamins)?

When it comes to budgeting, everyone has a different philosophy. Typically, people generally fall under three buckets.”

1) Those that track every penny that goes into their piggybank with excel documents and charts.

2) Those who do not keep track of where their money is going at all.

3) Those that look at the big picture.

I have come to learn that budgeting is an art, and something that you perfect with practice. Budgeting gets a bad rep. Whenever the term is used people think that it is a method to tell us to spend less and save more. This is exactly how I initially felt and I would try to avoid it. What I have come to realize is that this is far from the truth. Budgeting allows us to identify our free money, the money we like to spend on things we enjoy.

The 4 Buckets

The first step is is develop a framework. I like to divide my money into 4 different buckets.

1. Income
2. Fixed Costs
3. Variable Costs
4. Free Money

Income – This is the total amount of money we bring in through our jobs, businesses, side hustles or freelance gigs.

Fixed Costs – These are all the costs that we pay on a regular monthly basis. Think rent/mortgage, insurance, utilities, internet, cell phones, childcare, subscriptions, etc.

Variable Costs – These are costs that we pay that vary in amount month to month. Think groceries, personal care, eating out, healthcare, etc.

Free Money – This is the money we spend on things we enjoy.

For most people income is generally the same month to month. For those on variable incomes, calculate the average of your last 3-4 months income and use this number as a starting point. So take this number and subtract the fixed costs and the the variable costs. What remains is your ‘free money’. Consequently, this is the money to spend on things you enjoy.

The variable costs are levers you have at your disposal. The less you spend here, the more you have in your free money bucket to spend on what you desire. That’s it! Budgeting is about knowing what is coming in and what is going out. For some that can be done through a fancy spreadsheet with charts and tables, but the essence of budgeting is managing these 4 buckets. For me budgeting is about looking at the big picture.

Budgeting doesn’t have to be complicated or overwhelming. By following these simple steps, you can take control of your finances, prioritize your spending, and work towards achieving your goals. Remember, the key to successful budgeting is consistency and discipline, so stick to your plan and stay focused on your long-term objectives.