Everyone hates budgeting (myself included).

I mean really really hates it.

Maybe it’s the work to track and categorize your spending. Maybe it’s the idea of restricting yourself from your full (spending) potential. Maybe it’s some core human aversion to thinking about money. Who knows…

The thing is, everyone needs a budget. Even if you are rich (especially if you are rich) … if you are spending more than you make, you will go broke.

I’ll tell you now, this system is too simple for some. This is aimed at those with solid incomes. If you are living paycheck to paycheck, there is some additional work you’ll need to do that I won’t cover today.

So, before starting, let me make a few assumptions

  • You can safely afford to eat, shelter, clothe and entertain yourself
  • You have discretionary spending (things you buy that you don’t need)
  • You have a reliable source of money (employment, a company, inheritance, hustling)

Now that’s out of the way. The budget.

The first time, there is a little setup work needed. But, it’s better to get it kind of right and modify instead of not doing anything.

Step 1: Collecting some spending information

Start by figuring out how much money you spend. A service like Mint.com helps a lot. But, excel or Google sheets will probably be needed for the historical lookback. You need three numbers. Figure them out on a monthly basis. If you are too lazy to actually figure them out, make an educated guess and adjust later.

  • Utilities / Essentials
    • Rent, car loan, gas, health insurance, minimum credit car payments, etc. These are the things you need to pay or very bad things happen.
  • Discretionary Spending
    • Groceries, eating out, traveling, clothes, movies, electronics, etc. These things make you happy, but if they disappeared, or had to be cut by 50%. For example, you need groceries, but you have a lot of flexibility to control how much you spend.
  • Savings
    • The money being used for saving & investing. This includes 401k contributions.

Step 2: Setting up the accounts

In order to make this work, you need some bank accounts. Separate bank accounts make budgets super simple and easy to manage.

  • The Main Account
    • A place to put all of your money. Put your paycheck and income here. Make sure it has bill pay, because this is where most of your bills will get paid out of.
  • The Spending Account
    • Within the same bank (for quick and easy transfers), you need an account with easy access to money and a debit card.
  • [Optional, but not really] The Online Savings Account
    • You should have a place to stash money for the long term. It should be hard to touch this money and withdrawals only go into other investments (stocks, a house, children’s college tuition).

Step 3: Putting the budget on auto pilot

We are now at the core of the system. The special sauce that makes it easy to stick with and will put you on the right path to keeping your finances managed effortlessly.

All of your regular income goes into your main account. Setup direct deposit to all go there.

All of your Utility & Essential bills, come out of the main account. Use bill pay to have them done automatically and plan to keep a cushion here for anything last minute.

Convert your monthly discretionary spending into a weekly number (divide by 4.3, the average number of weeks in a month). Create a daily, weekly, or monthly transfer from the main account to your spending account. If you are worried about managing the budget, more frequent transfers help avoid spending a months budget in a day.

Saving is the key. The point of a basic budget is to grow your networth. Make sure you pick a real, but conservative discretionary number. Don’t spend more than you make!

Now … go crazy with that spending account.

You can literally buy whatever you want. Spend it all on food, drinks, or glow in the dark socks. Who cares! You have fool proofed your spending. It’s impossible to over spend.


Don’t cheat. You can make adjustments, but the goal is to save and build wealth … not buy everything you want. Be honest about how much you really need to spend on discretionary items.

Step 4: Adjust it until you get it right

If you did it right, your Main account (or savings account) will grow over time. Since you can’t accidentally spend too much, your Main account will grow. When it’s big enough, you are ready to invest (a topic for another day).

If your main account is running out of money (or getting close) you are transferring too much to spending. Time to scale back. Personally, it took months for me to get the numbers right. I wanted to make sure I was building wealth, but it was hard adjusting to a weekly budget. But, once I got it right, it’s completely effortless.

If you didn’t elect for the online savings account (I like Capital One 360), rethink that decision. An online savings account will help ensure you don’t accidentally spend your savings and give you a better interest rate. When you have enough, your investment options will really start to open up. I also like to put bonuses or unexpected money here to make sure it’s not squandered on glow in the dark socks.

Keeping it Simple

The goal here is to remove the work of tracking and categorizing all your transactions every month. You have a card and account and you can do with it whatever you want. As your goals change or your income does, revisit and adjust. I’ve used this system for years and it’s ended fights about money with my wife and made it easy for us to build wealth by keeping spending in check.

There is a lot more to understand about why you need a budget, basic planning for financial goals, and tracking your networth … but it’s a blog post, not a book. In due time.