Since we first started our journey paying off $650k of student loan debt, we’ve tried out dozens of different budgeting techniques, many of which were needlessly complicated. Budgeting can actually be extremely simple. From paying for everything in cash, to complex excel sheets, we’ve finally found the EASIEST BUDGETING METHOD ever that has worked amazingly well for us and helped us pay off over $200,000 the last couple of years.
PAY YOURSELF & TITHING FIRST.
It may seem counter-intuitive, especially if you are paying off debt like we are, but you should always always pay yourself first. Paying yourself first ensures that you will actually get paid. How much you pay yourself is entirely up to you. Since we’re paying off debt, we only save about 2.5% of our income right now, which we are currently putting towards retirement. We also pay tithing to our church before any other spending, which is 10% of our income. Some people are surprised to learn that we pay ourselves and tithing while we are still paying off debt, but I think it’s crucial for two reasons. First, paying yourself first helps you stay in the habit of paying yourself, that way when you are finished paying off debt, you already are in the zone to continue paying yourself first or in other words, saving money before you spend it. Second, you should pay yourself first because time is money. Even if you can only save a very small percentage of your income, that money, if properly invested, will grow over the years with interest and continue to accumulate as you add more. Time is something that none of us will ever get back, so you’ve got to use time in your favor while you can. I recommend saving a minimum of 1% of your income if you are paying off big debt. If you are finished paying off debt, ideally you’d save closer to 30-50% of your income, not only for retirement, but for investing and meeting other financial goals (like paying for your kids college for example).
After you’ve paid yourself (and assuming you are paying off debt), pay debt. I recommend paying off more debt than your minimum payment each month so that you can save money on interest. I also recommend prioritizing extra debt payments in order of highest earning interest debt first until it’s gone, then lower earning interest debt.
An example of how this might look:
Say you earn $50,000 per year. You have $10,000 in student loan debt with 5% interest, $5000 in credit card debt at 15% interest, and $3000 left on a car loan at 3% interest. Each month, you take home roughly $4000 per month. So first, you’d pay yourself– for now let’s say 1%. So the very first thing you’d do is stash away $40 in a savings account to pay yourself first. Then, if you’re a tithing paying person, you’d pay whatever amount to tithing (10%?). Next, you’d make all of your minimum debt payments to your student loans, credit card, and car payment. After which, you’d make a lump sum extra payment to your credit cards since they have the highest interest. After several months, once your credit card debt is eliminated, you’d move on to your student loan debt, and eventually, your car debt (if it still exists).
[P.S. if you need help with debt, be sure to check out our posts on Debt Help]
SPEND THE REST.
Whatever is left after you’ve paid yourself and debt goes to your regular spending. In other words, after you’ve paid yourself/tithing and made debt payments, whatever money is left is the amount of money you have to spend for the rest of the month or pay period. Since you’ve already saved money and paid debt for the month (or pay period) it really doesn’t matter how you spend the rest. You don’t necessarily need a fancy excel sheet budget. Just don’t spend more money than you have! It really is that simple.
I’ve found that tracking my non-fixed payments (fixed payments are payments that don’t change every month, such as mortgage/rent or a car payment) helps my money go further and is way easier to do than sticking to an excel sheet/app/some ideal budget that is not attainable. (This is the easiest budgeting method ever after all). You can do this a variety of ways, such as linking your bank account/credit cards to an app like Mint. But to me, the easiest way is this– grab an envelope at the first of every month and stick it either in your purse, car, or at home on the kitchen counter. Write at the top of it how much money you have to spend that month (aka the money left over after you’ve paid yourself and made debt payments. Then, subtract your fixed expenses from that amount (rent, car payment, etc). ANYTIME you spend money, you subtract it on the front of the envelope. This is why it’s handy to keep in your purse or in your car. After you’ve spent money, you put your receipt in that handy envelope! That way when you need to return something or want to use Ibotta, you actually have your receipts.
If you have money left over after all of your bills are paid and spending is done, I recommend making extra debt payments. If you don’t have debt, I recommend throwing that money at savings. But that leftover money is free money, so you are free to spend it how you wish. So make an extra debt payment, put some money towards savings, a vacation, whatever, it’s up to you!
- Get out an envelope and write the month at the top and how much money you have left after paying yourself and debt.
- Subtract any fixed expenses for the month, write it on the front of the envelope.
- As you grocery shop and pay other bills, subtract any spending from your money on the front of the envelope.
- Save all your receipts in the handy envelope.
- Store your envelope in a convenient place, like a purse, car, or kitchen counter.
If budgeting has felt needlessly complicated for you, use the easiest budgeting method ever. Pay yourself/tithing first. Pay debt. Then spend the rest. It really is that simple!
If you have student loan debt and aren’t sure where to start or what to do, I highly recommend the CFA’s over at Student Loan Planner to help you put together a solid financial plan for your student loan debt. We personally used them and it literally saved us over $200,000 on our student loans. You can check out the Student Loan Planner here.
For the comments: do you think some budgeting methods are needlessly complicated? Why or why not?
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