Does budgeting and money management make you want to scream with boredom or fear?
I get it. It’s like dieting. Except instead of tracking how many calories you took in from donuts this week, you’re monitoring how much you spent buying said donuts. Lame.
But there is hope.
In this article, I’ll explain how to manage your money in 11 bite-size steps, with minimal time and effort. This is the exact process I use myself, and it only takes about 1 hour a week / 5 hours a month. So, read this if you want to learn how to manage your money and maintain an effective budget.
Grab a pen and paper, and let’s get started.
Why Effective Budgeting & Money Management Matters
We’ve all heard the adage that money can’t buy happiness.
Maybe that’s true. Maybe it’s not. The jury’s still out on that one. But I think we can all agree that a lack of cash can cause anxiety and stress.
And the more stress you have around finances, the more likely you will ignore money management and budgeting entirely. The result? Total derailment by an unexpected expense – like an automatic car wash jacking up your windshield wiper motor (speaking from experience here).
Don’t let this be you.
By simply spending a few hours every month on your finances, you can zap money anxiety right out of your life.
11 Steps To Frazzle Free Budgeting & Money Management
The steps needed to budget effectively and manage your money with confidence fit into the following categories:
- Steps to take once
- Steps to take annually
- Steps to take monthly
- Steps to take weekly
I dive into each in the following sections.
Start Here
Step 1. Take Stock
Step 1 is the most time-consuming– but it’s a one-and-done situation, so it’s all downhill from here.
Block off 3 to 4 hours and answer the following questions:
- Income: How much income do you earn every month?
- Savings: How much are you putting towards your savings? Include general and emergency savings, retirement accounts, and other brokerage/investment accounts.
- Debt: What debts do you have? Your debt will include credit card balances, student and personal loans, financing on your car, mortgages, taxes, and purchases made with a payment plan.
- Fixed Expenses: What fixed expenses do you have? These include utilities, cable, internet, and rent.
- General Expenses On average, how do you spend the remainder of your money? For instance, general costs include groceries, gym memberships, salon appointments, subscriptions, gas, eating out, hobbies, travel, etc.
Don’t pass go until you have this information collected.
Step 2. Optimize Your Bank Account
When it comes to finance, less is not always more.
The more bank accounts you have (within reason), the easier it is not to overspend or undersave.
To get started, over the next week, set aside 2 hours to set up the following:
- Checking Account #1: Your main checking account is where you deposit income and from which you pay fixed bills.
- Checking Account #2: The second checking account is your spending money for the general expenses you identified in Step 1.
- Savings Account #3: You’ll want one account solely for rainy day emergency funds.
- Savings Account #4: This account is for big purchases in the pipeline, such as travel, a house, a car, or appliances.
I use Charles Schwab for checking accounts and Capital 360 for savings.
Tip: If deciding financial institution to bank with intimidates you, break this step down even further. Dedicate one day (or week!) to research. The next to opening checking account #1 (if you’re not happy with your current bank), and so on.
Step 3. Automate Your Finances
When you’re not thinking about when your bills are due and you have cash in the right place, your money stress goes away.
And the best way to support this effort is to automate your accounts.
To do so:
- Determine how much you want to put toward each category from Step 1.
- Identify on what date(s) you get paid.
- Identify on what date(s) bills are due.
- Set up automatic wire transfers from Checking #1 to the other accounts you opened in Step 2, according to the amounts, dates, and goals identified above.
Now that you have a solid financial infrastructure – all you have to do is maintenance!
Annual Performance Review
Step 4. Revisit Goals
Once a year, set aside 1-2 hours to review your financial goals.
Don’t forget to think beyond savings and debt repayment to other significant expenses in the year ahead. For example, are all your friends getting married this year, leaving you on the hook for gifts, grooms or bridesmaid outfits, and travel? Are you having a baby? Remodeling your kitchen?
If so, you’ll want to increase your monthly savings targets.
Hint: Don’t forget to update your contribution amount in your 401k or IRA if increasing your savings towards retirement is one of your goals for the year.
Step 5. Set Budget
Time for the dreaded budget.
Except – if you’ve completed Steps 1-4, the process should be painless. Why? Because you already collected all the information you need. Now you need to put it all together.
To set up your budget, set aside 1-2 hours and use the following formula:
| Step | Calculation | Refer To |
|---|---|---|
| Monthly Income | A | Step 1 |
| Debt | B | Step 1 |
| Fixed Expenses | C | Step 1 |
| Emergency Savings | D | Step 4 |
| Other Savings | E | Step 4 |
| Discretionary Spending | F=A-B-C-D-E | Step 1 |
If your discretionary spending budget is less than what you identified in Step 1 under the general expenses bucket, take an extra hour to figure out what you can cut. For instance, do you really need a subscription to a monthly plant delivery? What about accounts with all the streaming platforms? Can you do yoga at home?
Don’t call it quits on this step until A minus B, C, D, E, and F equals zero, and your discretionary spending budget is realistic based on your actual spending habits identified in Step 1. That’s when you know you’ve accounted for every dollar, and you’re not setting yourself up for failure.
Got it all planned out? Excellent – now update your automatic wire transfers to reflect any new amounts!
Hint: Wondering to build an effective budget if you have irregular income? Check out this guide from Experian.
Monthly Course Corrections
Step 6. Reflect on the past month’s budget
Now for the part that most people skip: reflecting on your progress.
How’d you do this month? Did you hit your goals? Or did you overspend and rack up overdraft fees or credit card debt? This step should take 30-45 minutes if you’ve completed Steps 1-5.
Be gentle but honest with yourself; it’s a learning process.
Step 7. Prep next month’s budget
On average, your budget won’t vary month-to-month. But life happens!
Did your rent change? Did you get a raise? Start a side gig? Pay off your car loan? Any of these would result in a change to your budget.
If this is the case, add an extra hour to adjust your budget using the formula from Step 5 and the amounts of your automatic wire transfers.
Weekly Check-Ins
Step 9. Check your spending
Why can I spend less than 1- 2 hours reflecting on the month as a whole?
Because at the end of every week, I update my budget to reflect that week’s spending, so by the end of the month, all I have to do is reflect and adjust.
Here all you need to do is collect and categorize all transactions from the week into the buckets from Step 5.
If you’re in week three, you can take a few extra minutes to check for overspending so you can pull back in week 4; that’s it! A cinch.
Tip: Try using an online budgeting software that syncs with your bank accounts to remove the hassle of tracking and writing down every transaction (I use YNAB). Or, if you don’t want to sync your accounts, most budgeting software will allow you to upload transaction downloads from your account.
Bonus Tips for Saving Even More Time
Step 10. Work With an Advisor
Overwhelmed or just looking for some extra support in getting started? Consider working with an advisor to help create a money management and budget system based on your specific needs.
Tip: If you’re using a more sophisticated budget system, like Personal Capital, that not only shows you you’re spending but also all bank account and debt balances, they likely offer a free consultation.
Step 11. Budget template
Don’t recreate the wheel!
Make this process by using my budgeting template. The template allows you to track your budget weekly and monthly. Plus – you can use the template to easily track your net worth and debt vs. income ratio month-over-month.
Why Wait? Hone Your Budgeting & Money Management Skills Today.
Don’t let money stress you out or catch you unawares. Complete one step a day, a week, or a month – whatever gets you one step closer to your goals and confidence.
For example, maybe this week, you complete step 1.
Next week you research bank accounts.
And the week after that, you set up one new bank account.
Whatever it takes to keep you on the road to effectively managing your money.
And when your system is all set up, don’t forget to share your wisdom, hacks, and experiences with the Cultivating Cash community via the comment section below.
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