EASY Budget: Four Categories to reach your goals

Friends, I am using this blog today to announce that I've arrived at an mnemonic/acronym to describe my budget philosophy... the EASY budget!

A few disclaimers: 

• "Announce" is a strong word since nobody reads this blog. Well, spiffikins, sometimes! Hi spiffikins! Tell me how spammy this sounds.
• EASY might be a terrible idea for an acronym. It's not very google-able.
• Whenever anyone uses a mnemonic in a speech these days I assume they used AI to get it. I have not used AI for this blog at all. I hate it, I hate reading the slop. I don't know how to tell everyone that I am the most not-robot person. But it's me, Kim, I seriously just brainstormed up what to call my budget philosophy and this is it, and I think it is different from others we read, and I hope it helps someone.

Here it goes!

E - Emergencies

Emergencies based on ACTUAL emergencies. In my experience most people struggling to get out of debt have been trying to adult for at least a little bit of time - they've spent a year or 10 earning some income, just spending more of it than they earn. But this is great for sizing an emergency fund! You can look back at your statements, find the real vet bills, funeral travel, medical expenses and car repairs that ruined your fun in any given month, and make sure you are saving up as if you will have those same things happen in the future! Or if you don't like that there are plenty of other guidelines for emergency savings - Dave Ramsey's $1000, the money guys up to your insurance deductibles, Fidelity said 5%, LOTS of people say 3, 6, 12 months income... but that's a lot. I like to understand why and how you'll use that emergency fund, and using that to base your savings on reality. I also like the 5% thing. Take your pick. But that's the first letter.

A - Automation

Okay here is where my budget will differ from the ones I've read about before, but stay with me. When we were getting out of debt I tried setting a weekly budget, but then the week where the electric bill hit was weird. That's where a lot of budgeting advisors would tell you to start re-categorizing everything. But I realized that I needed to just see what I was spending, without the background noise of predicable bills messing up my little days or weeks. I needed to think about my spending every DAY, but a lot of expenses come in every MONTH. So throw them aside on one category. Or my real advice: one CARD. Use one credit card for automatic stuff that you can't really control too closely. It's good to know the amount, stare at it, do what you can to bring it down. This method actually helps you do that, because you have a card with a short, simple statement that takes 10 minutes to look through every month. Or program it to shoot you a text whenever it's hit. You'll realize very quickly if you've grown to have 10 different subscriptions, or Netflix has tripled, or your insurance went up again, because the grand total for that card has gone up too. Put your automatic stuff in one place, consider it a category, and look at it monthly.

S - Spending

Third category is spending. This is where a lot of budgets like to break out anywhere from 5-70 different categories - groceries, going out, coffee, birthday cakes, haircuts, clothes, shoes, shoelaces... STOOOP. All I've learned about categories is that the more complicated your system is, the less likely you are to stick to it, and the more likely you are to need some expensive monthly app, and the more likely you are to go OVER. I'm declaring it: 25 categories of budget that's 25 places to go over budget! My life got easier when I realized that money out was just that - money out. To really get out of debt I had to set a strict daily goal, based on my income. Sometimes that meant eating cheap pasta because I needed shampoo, or going several months without any new clothes (actually - I still go months between new clothes, it was great). As my savings rate increased I could relax and have a weekly spend limit that was above my daily one, to allow for a little more flexibility. But when you're just starting out, be strict. Use auto-bank transfers that only put a little in your debt account to spend and leave it at that. Spending is spending. Quit slicing it up. 

Y - Your Goals

Finally - what are your goals? This will determine what you use to set your spending limit, the categories all have to play nice with each other, every change to one is a compromise with the others. Your goals need to be items that spark great joy when you think about them. 

Maybe you want to retire early. I wrote an entry about the math on this - but if you save fifty cents for every dollar you spend, you’ll be financially independent in your 50s, well before many of your peers. Many finance people recommend saving a dollar for every four you spend - a 20% savings rate, that will have you on track for retirement 40-ish years after you start working, in your 60s for most of us. You should probably at least do that.

If you've already done that, and don't want to retire earlier, you can add goals. Maybe you want to make sure you can take an international trip in five years. I wanted to take flying lessons, donate to charities, and buy my family season tickets to the Broadway touring shows that come through our city. I like Ramit Sethi's philosophy of imagining your rich life and cutting out everything that takes away from that.  All those big goals come out of a separate account, and I know what they cost.

Why it works

To me, this is the simplest budget one can have that lets you track spending, evaluate your expenses, and see what you need to do to save more and reach your goals. You can look back at your last six months NOW and total up where everything was at. How does it make you feel? What should your spending category be, to help you reach your goals? What automations have crept up on you? You don't need a complicated app to do this - I just re-arranged what cards I was using for what, so I had simple statement totals at the end of the month that told me how I was doing. 

We managed to get out of debt in 2018 and I haven't looked back, that's why a lot of this blog is about investing, calculating, getting ahead, and making the world a better place. I never felt like any philosophy really made a ton of sense before, so I'm proud to be summarizing my own, finally! I hope it helps you too.