05 - Creating a Simple Budget That Works

The word "budget" often brings up feelings of restriction and stress. In this episode, we reframe budgeting not as a financial diet, but as an empowering roadmap for your money. Daniel and Shanna explore simple, sustainable methods that you can actually stick with. We’ll teach you how to use the balanced 50/30/20 rule to categorize your spending without getting overwhelmed, and we’ll explore the power of the "Reverse Budget" for those who hate tracking every penny. Find the right method for your personality and feel in control of your cash flow.

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Transcript

Episode 5 | Creating a Simple Budget That Works

00:00:00 Daniel Hill: Shanna, have you ever gotten to the end of the month, looked at your bank account and just thought, where did it all go?

00:00:10 Shanna Browning: All the time. But I think if we're being honest, everyone has had that feeling. It's that moment of confusion where your paycheck felt so big on the first of the month, and now you feel like it's just gone into thin air.

00:00:22 Daniel Hill: Exactly, exactly. And that feeling of not knowing, of not being in control is often what makes people afraid of the word budget. They think it's going to be a straitjacket that points out all their financial flaws.

00:00:36 Shanna Browning: But it doesn't have to be. And today we're going to reframe that word. A budget isn't a judgment. It's just a plan. It's a tool that gives you permission to spend but not to restrict you.

00:00:59 Daniel Hill: Welcome back to Making Sense of your Cents. I'm Daniel Hill.

00:01:03 Shanna Browning: And I'm Shanna Browning. Last week we had a great conversation with our CEO, Rob Barger, about the power of paying yourself first. Today, we're building directly on that foundation by talking about that B word budgeting.

00:01:18 Daniel Hill: We promise it won't be painful. In fact, our goal today is to show you a few simple, flexible methods that can help you finally feel in command of your cash flow.

00:01:29 Shanna Browning: All right, Daniel, let's start with so many people have a negative relationship with budgeting. They try it for a week, feels overwhelming, and they give up. What's the number one mistake you see, people make?

00:01:42 Daniel Hill: The biggest mistake by far, Shanna, is people trying to be too perfect too soon. People download a complicated spreadsheet with eighty different categories. They try to track every single penny. They spend hours of trying to figure out if that coffee they bought was dining out, or groceries, or personal spending.

00:02:03 Shanna Browning: Right. It's analysis paralysis. The sheer volume of data becomes overwhelming, and it feels more like an accounting chore than a helpful tool. And that does not become sustainable.

00:02:14 Daniel Hill: Exactly. A successful budget is not about tracking the past with perfect accuracy. It's about guiding the future with a few simple rules. The goal is simplicity and consistency, not complexity and perfection. So the first rule of budgeting is to give yourself grace. You're not going to get it perfect on day one, and that's okay.

00:02:36 Shanna Browning: So instead of trying to build a perfect system, what if we just focus on a good enough system that we can actually stick with?

00:02:44 Daniel Hill: That's the secret. Today we're going to talk about two popular and effective methods that are built on that very idea the fifty thirty twenty rule and the reverse budget.

00:02:56 Shanna Browning: All right, let's break it down. That first one, I've heard a lot about the fifty, thirty, twenty rule. How does it work?

00:03:03 Daniel Hill: It's one of the most popular methods for a reason. It's incredibly simple. You take your after tax income, the annual amount that hits your bank account, and you divide it into just three categories, not eighty.

00:03:18 Shanna Browning: Only three. That already sounds manageable.

00:03:21 Daniel Hill: It is. The first category is fifty percent for your needs. These are the absolute must haves, the bills you have to live. This includes your rent or mortgage, car payment, insurance, utilities, groceries, and minimum debt payments. If you can keep all of your essential living expenses at or below fifty percent of your take home pay, you're in a great financial position.

00:03:47 Shanna Browning: Okay, so half for the essentials. What about that next bucket?

00:03:51 Daniel Hill: The next is thirty percent. And that's for your wants. This is the fun stuff. It's your hobbies dining out, streaming subscriptions, vacations, that new pair of shoes. This is a crucial category because it gives you explicit permission to enjoy your money. A budget that has no room for fun is a budget that's destined to fail.

00:04:12 Shanna Browning: And I love that. Work hard, play hard. It's not about deprivation. It's about planning for enjoyment. So that leaves the last twenty percent.

00:04:21 Daniel Hill: And this is the most important part, twenty percent for savings and debt repayment. This bucket is for building your future. This includes building up your emergency fund, making extra payments on high interest debt like credit cards or student loans, and investing for retirement in accounts like a 401(k) that I understand now or an IRA.

00:04:45 Shanna Browning: Oh, perfect. So a quick recap fifty percent for needs, thirty percent for wants, twenty percent for savings. It's a simple framework that gives every dollar a general direction without getting lost in the tiny details.

00:05:00 Daniel Hill: Exactly. Now, this second method is my personal favorite because it's even simpler. It's often called the reverse budget.

00:05:09 Shanna Browning: Well, now wait, that sounds really familiar. Isn't that exactly what we discussed with Rob Barger in our last episode? Savings 101?

00:05:18 Daniel Hill: It's exactly the same principle. Rob called it paying yourself first. And it's so powerful. It's worth its own spot here. He framed it as a savings strategy, but it's also a brilliantly simple budgeting strategy. Instead of tracking every penny you spend, you focus only on your savings goal first.

00:05:39 Shanna Browning: So you automate your savings, and then the rest is just what you have to live on for the month?

00:05:45 Daniel Hill: Precisely. The moment you get paid, you automatically transfer your savings amount, say ten or twenty percent of your paycheck, into a separate, hard to reach savings account. Then you simply manage your life with the money that's left in your checking account. You don't need to categorize every purchase, you just need to make sure your checking account doesn't hit zero before your next payday.

00:06:05 Shanna Browning: Well, I, I can see why you like that. It forces you to prioritize your future, and it removes the tedious chore of tracking. You get the most important part done first, automatically.

00:06:18 Daniel Hill: So we have two great options the fifty thirty twenty rule, which provides a clear framework and spending guidelines, and the reverse budget, or Paying Yourself First, which prioritizes savings and offers maximum simplicity.

00:06:33 Shanna Browning: But as we're sitting here talking and to our listeners, how does someone choose which one is right for them?

00:06:39 Daniel Hill: It really comes down to your personality and your financial situation. If you're someone who feels like your spending is completely out of control and you have no idea where your money is going, the fifty thirty twenty rule might be a great starting point. The act of categorizing your expenses for a month or two can be incredibly eye opening, and help you identify areas where you might be able to cut back.

00:07:03 Shanna Browning: So it's a great diagnostic tool to get a clear picture of your habits.

00:07:06 Daniel Hill: Yes, but if you're someone who's generally responsible with money but just struggles to consistently save, the reverse budget is almost certainly the way to go. Its power is in its simplicity and automation. Set it up once and it works for you forever in the background.

00:07:23 Shanna Browning: So you can combine them, right? You can use the reverse budget to automate your twenty percent savings goal, and then loosely keep the fifty - thirty split in mind for the money that's left over.

00:07:35 Daniel Hill: That's a fantastic point. These aren't rigid, mutually exclusive rules. They're flexible frameworks. The best budget is the one you don't even have to think about, the one you can actually stick with long term.

00:07:51 Shanna Browning: All of this talk about planning is great, but now it's time to put it into practice. And that brings us to this week's actionable tip.

00:08:04 Daniel Hill: Your action item for this week is the Clarity Snapshot. We're not asking you to build a full budget yet. We just want you to get a clear, honest picture of where you're at right now.

00:08:16 Shanna Browning: And here's how you're going to do it. Log in to your online banking or pull out your last two bank statements. Get a pen and a piece of paper. We're going simple. We're going to make three lists based on the fifty, thirty, twenty rule.

00:08:31 Daniel Hill: First, go through and add up all of your needs. This is your rent, your mortgage payment, your car payment, insurance, utilities and average what you usually would spend on groceries. Get a total number for your essential monthly expenses.

00:08:46 Shanna Browning: Secondly, go through and identify your savings. Are you contributing to a 401(k)? Do you have an automatic transfer setup? Add how much you are consistently putting away for your future each month.

00:09:00 Daniel Hill: Finally, whatever is left over is your wants. You don't have to itemize it. Just take your monthly income, subtract your needs and your savings, and that remaining number is what you're spending on everything else.

00:09:13 Shanna Browning: And this simple exercise will give you your personal fifty, thirty, twenty ratio. Maybe you're at seventy ten twenty or sixty thirty, ten. There is absolutely no judgment. This goal is just clarity. Knowing your starting point is the most critical first step to getting where you want to go.

00:09:35 Daniel Hill: Next week, we're going to be talking about the difference between two pieces of plastic in your wallet that work very differently. Debit versus credit.

00:09:45 Shanna Browning: And again, subscribe to Making Sense of your Cents wherever you listen. And send us your questions at podcast@fcbtn .com.