The Theory Behind BudgetSimple

Welcome! So you probably ended up here because you were looking for a free online budget. Congratulations, you have found one, but now what?

The first thing to know is that there is not a single way of budgeting your finances. You ll certainly find lots of different advice on the internet. I don t believe there is any one best way to budget, but I think the way we have setup here using BudgetSimple is the most straight forward.

Here is the theory: You have a certain amount of money that comes in every month. For some people this is variable, but for most people this is basically fixed. Let s pretend it s $2,000 a month. You also have a certain amount of fixed expenses. Fixed expenses are things where the amount does not change, and the payment of the expense is not optional. An example of a fixed expense is your rent or mortgage. Besides fixed expenses you have variable mandatory expenses. These are things like the Electric bill. You don t know exactly what it will be month to month but you know you ll have an electric bill due. Finally there are variable optional expenses. These are things like food, clothes, going to the movies, etc I know you are thinking food is mandatory, but let me say you can at least control this expense. You could eat Ramen every night (your medical bills might end up higher though), or you can eat caviar every night.

So how does BudgetSimple help you with all of this? The way most people operate is they get their paycheck(s) each month, pay the bills, go grocery shopping, and go shopping for other things with only the idea that they have enough money in their bank account to cover what they are buying. Sometimes there is more in the bank account and sometimes there is less (or nothing!) but it always seems like there is less then their SHOULD be, and afterall I m not living extravagently but why does it seem like I never have any money? .

BudgetSimple hopes to at a bare minimum answer that last question. At it s core that is the most useful function of BudgetSimple, showing you where your money goes. The process works like this:

  1. At the beginning of the month you take your expected income ($2,000)
  2. Divide it to all of your mandatory fixed expenses first ($500 Rent, $100 Insurance, $50 Karate Lessons, $250 car payment)
  3. Next estimate what your variable expenses will be, always try to OVER estimate ($200 electric, $100 heating, $150 gas)

That takes us to $1350 in expenses so far this month, and leaves $750 for everything else. Now put your goals of what you would ideally spend for the remaining expenses ($250 groceries, $50 clothes, $100 entertainment, $50 car maintenance, $50 pet food, $200 eating out). That leaves us with around $50 left over, which we ll put into savings. Now that is our PLAN. The plan looks great because not only are we paying all of our bills but we are also saving money (and not just eating Ramen). Now that we have a solid plan, you should login each day and see how your actual spending meshes with the plan. Maybe at the end of the month you have something like:

Category Budgeted Actual
Rent 500 500
Insurance 100 100
Car Payment 250 250
Karate Lessons 50 50
Electric 200 232.76
Heating 100 110
Gas 150 178.89
Groceries 250 276.34
Entertainment 100 112
Car Maintenance 50 29
Pet Food 50 45
Eating Out 200 290
Clothing 50 76
Savings 50 0
Total 2000 2249.99

Hmm, what is this showing? We spent $249.99 more then we planned to! No wonder we always are in credit card debt, and the plan looked so good too!

Where to go from this unbalanced budget is fodder for future posts here. Start tracking your finances now and check back later for tips on actually getting your budget balanced.