The Quick and Dirty Lazy Man's Budget

There is no doubt about it. The full formal written budget is the gold standard, but not too many students of personal finance stick with it, once the class is over or the emergency has passed. Here is an inferior option for the lazy. It is better than nothing and it might just tell you that you need to contemplate living on a formal budget.

Start with your take home pay. Don’t tell me that you are a commission salesperson or a server who lives on tips. Therefore, you don’t know your salary. If you couldn’t make a reasonable estimate about how much you were likely to take home, I doubt you would have taken the job in the first place. If you have been on the job a couple of months, you know.

OK, let’s say your take home pay is $500 a week. That would be $2,000 a month, except for the “happy” months with an extra paycheck. Back in the day, I loved those “happy” months. Since the budget in my head was based on 4 week months, that extra paycheck seemed just like winning the lottery.

Base your budget on $2,000. First subtract $200 (10%) for savings. Then subtract $400 (20%) for unknowns. Your goal is to try to create a quick and dirty estimate of your monthly expenses that is equal to or less than $1,400. For the sake of this example, let us assume that you will not make it work on the first try.

$500 Rent
$150 Electricity: If your bill in December was $130 it is a safe bet that it will be higher in January.
Water: Included in the rent.
$300 Car Payment:
$130 Gasoline:
$25 Minimum Credit Card Payment
$135 Cable TV, Landline, and High Speed Internet
$100 Cell Phone:
$300 Grocery Store Food:
$300 Restaurant Food and Beverages:
$100 Clothing Allowance

Total: $2,040
Allowance: $1,400
Difference: -$640

Note: This total did not include “known” infrequent expenses like car insurance or “known unknowns” like medical bills or car repairs. You have a problem, but not a really bad problem.

Let’s try again.

You could ditch the package deal from the cable company and live with $35 a month basic cable service and go to the unlimited data plan on your smart phone at $125 a month, saving $75.00 a month.

I am assuming this example is for a single young person. It seems like $600 a month for food is a little high. Let’s look into that number. Perhaps the grocery store bill includes a lot of microwave convenience food, very expensive. Perhaps the Restaurant estimate is lower than reality. One night out with friends could blow $50 right quick. 20 workdays in a month multiplied by $10 for fast food and coffee is $200. It is on controllable items like this where mindfulness and discipline will make or break a budget.

Let’s hold the Grocery bill at $300 but make a serious effort to stretch those dollars. Let’s put $100 actual factual dollars in an actual factual envelope for restaurants; when they are gone, no more restaurants for the rest of the month. That might mean sweet tea instead of beer or wine on those nights out and brown bagging it instead of the company cafeteria. That saves $200 a month.

Now how does it look?

$500 Rent
$150 Electricity: If your bill in December was $130 it is a safe bet that it will be higher in January.
Water: Included in the rent.
$300 Car Payment:
$130 Gasoline:
$25 Minimum Credit Card Payment
$35 Cable TV
$125 Cell Phone: Unlimited Data Plan
$300 Grocery Store Food:
$100 Restaurant Food and Beverages:
$100 Clothing Allowance

Total: $1,765
Allowance: $1,400
Difference: -$365

What are the numbers in this example telling you? I would propose a quick and dirty scale to go with this quick and dirty budget.

Green Light: If you are living on 70% or less of your take home pay
Amber Light: If you are living on 90% or less of your take home pay
Red Light: If you are spending more than 90% of your take home pay

It this example this person is spending 88.25% of their take home pay. Way too close to the line for comfort. I would recommend ditching the clothing allowance. Most adult Americans have enough clothing to last them several years. If there were children in this example this would not be true. That would drop the number to 83.25%, still not good but better.

I would suggest that this person consider living on a formal budget. I would also recommend that this person look for opportunities to work a little overtime. When I was working on the factory floor back in the day an extra four or five hours a week at time and a half made a big difference in what was left over at the end of the month.

It might take you 15 or 20 minutes to run through a couple of iterations of this process. If you are honest, it will tell you a lot with only a little effort.