Take the first step to escape living paycheck-to-paycheck… by creating an un-detailed budget.

You want to stop living paycheck-to-paycheck but the thought of building a detailed budget makes you break out in hives. What should you do instead? Jump-start your path to controlling your finances by memorizing, learning, and internalizing just four numbers.

I have been nerding out and following personal finance for about 20 years. Pretty much all of the big financial gurus start with the same advice: Build a detailed budget.

Well, I hate building a detailed budget. I have tried a few times over the years, but never really finished. And yet, I have complete control over my finances. I know exactly where I am and what I’m trying to accomplish at all times.

How? Well, I have an un-detailed budget.

The Problem: Detailed Budgets

To build a detailed budget, most people sit at their kitchen table with pad and paper (nerds like me grab their laptop and open excel), and start by estimating how much they need to survive each month in a handful of categories.

The master personal-finance wizards at Quicken recommend 8 categories. The Balance has 52 categories. The Budget Mom has over 70 categories. The Frugal Gene has over 90 categories.


Talk about diving into the deep end.

If you are just starting to organize your finances, this is a very difficult and overwhelming place to start. Even if you are able to wrangle your finances into dozens of categories, there is no way you will be able to internalize and remember them.

As a result, you will be totally reliant on your spreadsheet or tracking software.

So, what should you do instead?

Build an un-detailed budget.

The Solution: An Un-Detailed Budget

Instead of diving deep into all of those categories and trying to make incredibly detailed decisions about how you will spend money that you will earn six months from now… try this:

We are going to do a little math problem (sorry, a bit of math is necessary). We are going to try to balance an equation with exactly four numbers:

  • Income;
  • Recurring Expenses;
  • Personal Spending;
  • Savings.

First, you need to know your monthly take-home income. If you are paid a salary and your paydays are the 1st and 15th, then that’s fairly straight-forward. If you are hourly, paid every two weeks, commissioned, self employed, seasonal, or anything else, it is a bit more complicated.

I go through a whole methodology to estimate an appropriate number for your income in my book Practically Independent: Practical Advice to Become Financially Independent. But, if you don’t have my book, we can keep it simple: go to your bank statements and look at your income deposits for the last 6 months. Find the month that has the smallest total and use that as an estimate of your income.

If you have the kind job that may go months between large commission checks, then this method won’t work for you, sorry. Instead, it may work to add up your total income for a year and divide by 12.

Recurring expenses refers to money that will disappear from your account every month even if you don’t spend a dime. Things like: mortgage/rent, utilities (water, sewer, gas, electricity, TV, internet, cell phone), car payment, car insurance, health insurance, other debt payments.

Next, is personal spending: everything else. Groceries, dining out, Amazon purchases, shopping… ooh and lattes!

Savings: the difference between your income and the other two categories. If this number is positive, you have money left over to add to your savings account. If it is negative then you have to take money from savings or go into debt to make ends meet.

Now that we have the four categories defined, what do we do with them?

When you are at the very beginning and trying to escape living paycheck-to-paycheck, it will help immensely if you can really learn… internalize… these numbers.

First, calculate your income. Round it to the nearest hundred. Learn it. Memorize it. Internalize it.

You should know your monthly take-home income off the top of your head.

Second, calculate your monthly recurring expenses. Learn it. Memorize it. Internalize it.

You should know your monthly recurring expenses off the top of your head.

Now, subtract your recurring expenses from your income: that is how much you have left over for your personal expenses and savings. So now, you have an equation that absolutely has to be kept in balance every month:

Un-Detailed Budget: Income – Recurring Expenses = Personal Expenses + Savings

This equation will balance itself out every single month whether you are paying attention or not.

For example: if you make $2,000 and your recurring expenses are $1,200, then you have $800 for your personal expenses and savings.

If you spend $200 per week on personal expenses, then after a month you will have nothing left over to add to savings.

$2,000 – $1,200 = $800 + $0

However, if you can pull your personal spending down just by $25 per week (to $175), then at the end of the month, you will have $100 to add to your savings.

$2,000 – $1,200 = $700 + $100

On the other hand, if you end up spending $225 per week, then by the end of the month you will have either depleted your savings by $100, or added $100 to your credit card balances.

$2,000 – $1,200 = $900 + (-$100)

Why The Un-Detailed Budget Works

Remember those financial gurus I brought up at the beginning? The ones that want you to organize your budget into dozens of categories?

The reason I don’t like to start with a detailed budget is that it always feels like it is coming from a place of judgement.

Their logic usually goes like this: if you’re buying two $5-lattes per week, that’s $40 per month, which is nearly $500 per year. Wouldn’t you rather have that extra $500?

That entire line of reasoning has built-in judgement about your coffee. At some level all of those authors seem to think you are a wasteful spender because you enjoy a coffee now and then.

Well, it is a new day. This is a judgement-free zone. You can buy as many lattes as you want. No shame here!

The beauty of the un-detailed budget is that it balances itself every single month. Any increase or decrease in income, recurring expenses, or personal expenses, is automatically absorbed by savings.

That means that after you have calculated your own income, recurring expenses, and personal expenses, you can see for yourself what you want to try to improve. If you improve any of the three (without changing the other two), then the difference goes right to savings.

If you are able to increase your income and don’t change the other two, your savings increases.

If you are able to reduce your recurring expenses and don’t change the other two, your savings increases.

If you are able to reduce your personal spending and don’t change the other two, your savings increases.

Here are three realistic examples similar to situations I saw when I was a financial advisor. All of these people wanted to escape the paycheck-to-paycheck cycle and didn’t know where to start.

Frank: Take-home pay of about $24,000 per year, small apartment, no car, liked to dine out and hit the clubs.

$2,000 – $800 = $1,200 + $0

In Frank’s situation, he didn’t realize how much he was spending on his social life. $1,200 per month is about $300 per week. So, if he could just reduce that by $25 per week, he could start saving.

Sue: Take-home pay of about $48,000 per year, nice apartment, car loan, liked dining out and vacations.

$4,000 – $3,000 = $1,000 + ($0)

For Sue, she may think that her dining out and vacations are the extravagances that are keeping her from saving, but by summarizing her un-detailed budget, she could see that the bulk of her challenge is her nice apartment. If she downsized or took on a roommate she could significantly change her financial situation without giving up her vacations.

Bobby & Bobbi: Married, take-home pay of about $72,000, large house, fancy cars.

$6,000 – $4,500 = $1,500 + ($0)

For Bobby & Bobbi, they are making around $100,000 pre-tax income, and they have let their recurring expenses grow with every raise. When they bought the house, they found out how much mortgage they could qualify for and bought at the top end of the range. Now, that big house has high utility bills, property taxes, and they financed some of the furnishings. They have so many recurring expenses that there is little left for personal expenses and nothing for savings. For them, the easiest way to make financial progress might be to trim those recurring expenses.

The moral of all these stories is that you don’t need to start with an incredibly detailed budget that gets into dozens of categories. In fact, too much detail can be paralyzing.

By really learning and internalizing just four numbers, you can compare them and understand what drives them. And then, you can decide just what to do about them.

This is just the first step, but I think it is essential. Once you have your four numbers and really know what they’re about, then you can dive into more detailed categories.

If you find that the primary thing keeping you in financial hot water is recurring expenses, then you can really dig into those expenses and make sure they are all necessary.

On the other hand, if it is personal spending that is holding you back, maybe you could try some financial tracking software to determine if there is any unexpected waste. I like mint.com, but feel free to explore and find one you like. There are tons of apps and sites that can help.

I hope this has been helpful! Comment below with your thoughts and questions.

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