The Most Powerful Finance Tool in the World (and it’s free!)

My friend Sam created that graphic for me, tongue firmly in cheek. I find it fitting because today we’re going to talk about the single most powerful tool in the personal finance arsenal. Anyone can employ it. It’s more misunderstood than CDOs or credit default swaps. Best of all? You guessed it: it’s absolutely free.

The tool? Your budget.

The myth of the budget

Say the word “budget” in a crowded room of people and most of them have the same picture in mind: a piece of paper that bullies you out of spending money in any way that could possibly be considered fun. No more going out with friends, no more lunches at restaurants, no more movies or shopping. Life as we enjoy it? Over.

Alongside that vision of the most boring life ever is a picture of you, poring over receipts and data every month trying to figure out how much you spent on every single category in the budget. Hours slip by as you crank away on your adding machine, green visor festooned, hunched over counting dollar bills, woefully hating yourself for spending $.27 more on toilet paper than the budget had called for.

That vision of a budget and the process of budgeting? It’s bullshit. Ain’t nobody got time for that.

The truth of the budget

In reality your budget is a tool that helps you understand what money you have, where it goes, and allows you to determine if you’re happy spending the amount you are on the things you are or not. You have 100% control over how much you spend on eating out, shopping, and entertainment. Tracking your expenses? I’m going to show you how to do it easily, lazily, and best of all for free. Your budget is about taking control of the knowledge of what money you have and where it’s going and being able to own your happiness with those facts. And if you’re not happy about something? Your budget empowers you to change things until you are happy. Best of all, once you’re finished learning my budgeting method you’ll spend an hour or less on your budget each month.

The Bill Stark guide to lazy budgeting

Personal finance is a thing that drives me, and I love it. I’m captivated by spreadsheets and the power of compound interest. But when it comes to the day to day functioning of managing my finance’s? Man, I’m lazy. I want to do as little as possible as infrequently as possible so I have a grasp on what’s going on, so I can meet my goals, but so that I have the time to enjoy the amazing world around me without spending all day inside obsessing over my budget. So how do I draw a balance? I created a process I call “Lazy Budgeting.” Here’s how it works.

Step 1: Figure out your data

The first step to budgeting is knowing how much you’re spending and what you’re spending it on. You can find most of your outstanding debts through your credit report, which you can access from all the major credit bureaus for free once yearly. (If you haven’t already done so this year, you can check out your reports here from the free government website). This is important so you know what portion of your expenditures each month go towards paying off money someone else has lent you.

In addition to your outstanding debts you’ll need to determine how much you spend out of pocket each month simply living. This covers all of your expenses for things like rent, food, heating, clothing, gas, car maintenance, insurance, public transportation, etc. Every single dollar that goes out is accounted for so you can start putting together the puzzle of where your money goes each month. “But wait a second Bill,” I can hear you asking, “I thought you said I wouldn’t have to obsess over everything and I’d be LAZY about budgeting! How can I be lazy if I have to figure out EVERY DOLLAR I spend?” So glad you asked. We’re going to “hire” an accountant to do all of this work for us. Best of all? She works for free.

Step 2: Track your expenses in Mint

The key to lazy budgeting is outsourcing the work of tracking your expenses. Luckily there’s a swift app that does all of this for us, straight from our cell phone or computer. It’s Mint, and it’s going to do the heavy lifting of our budgeting for us. If you haven’t already, set up a free Mint.com account here.

How does Mint work? It’s pretty simple: you create your account, set up some simple account information, and Mint tracks all of your expenditures on your debit or credit cards as well as the outstanding debts you owe. Because Mint has millions of users it crowd sources the classifying of your expenditures. Stop off at McDonald’s on the way home for a sandwich? Mint knows that counts as spending on fast food. Pay your monthly bill at 24 Hour Fitness? Mint knows that’s an exercise expense. Your new accountant handles all your spending tracking for you automatically and for free allowing you to enjoy the world around you.

Step 3: Do nothing for a month

Wha??? Dude,I told you this is the lazy budget. After you’ve got Mint set up, don’t do anything for a month. Seriously. You’re going to allow Mint to generate the data on how much you spend and what you spend it on, and a month is a good baseline to base your budget off of. Spend like you normally do so you can see what you pay in a normal month. This will give you a good feel for a month’s worth of expenses covering all of your monthly recurring bills (phone payment, rent, student loans, etc.) as well as how much you spend on things like food for an entire month. You may see some expenses that are higher than they’d normally be (buying a new cell phone happens only once every few years, so don’t worry if it happens to fall in the month you start tracking with Mint), and some that are lower (car insurance might be $0 if you pay once every six months and it’s not a pay month when you start tracking).

Step 4: Create your budget

Now that Mint has done the heavy lifting of tracking your data and classifying it for an entire month, it’s time to create your budget! I recommend using a spreadsheet document like Microsoft Excel or, if you don’t have a Windows machine, try the free Google Spreadsheets. On the left-hand column (that’s the one going up and down) type in each class of expense that Mint tracked for you. If you see one that doesn’t make sense or isn’t quite right? You can adjust it yourself in Mint and Mint will remember it moving forward. In the column next to each of those expenses input the total you spent on them each month. When you’re done, add it all up and you’ll have the total amount of money you spend each month, plus what you spend on each category. Budget complete!

Step 5: Adjust your budget

Now you can see what you spend and where you spend it each month allowing you to make adjustments to your goals. Did you spend 25% of your income on eating out? Are you happy with that number? If yes, leave it! If you’re not, set a goal for next month to cut that spending and use Mint to help you track how you’re doing. You have absolute control over what you spend your money on and where you spend it and you might be surprised to find some of the numbers are higher than you thought. Knowing the data lets you decide if 50% of your income going towards “Entertainment” is really necessary for you to enjoy life, or if you could get by going to fewer $100/ticket concerts and instead hiking with your friends for free once in a while and throwing the $100s you save towards paying off your student loans faster. With your lazy budget, it’s entirely up to you to decide whether you’re happy with where your money is going!

Step 6: Check in each month

Now that you’ve got your budget set up for a month the hard work of lazy budgeting is done. All that’s left is the simple maintenance of checking in each month to see what your spending was for the month, compare it to your targets, and adjust your goals for the following month. Simply follow step 5 each month to pull your data for the last month’s spending, start a new tab in your spreadsheet for that month, and fill out the data. You might find as your data tracks longer and longer that you have expenses that need to be added to track consistently (that pay-every-six-months car insurance payment, perhaps?), or some that go away entirely (that student loan you were paying off with the money saved from going to so many concerts). The more data you have, the better picture you can paint of your financial life and the more control you have over your personal finances. Once you get used to budgeting the entire process will take an hour or less each month leaving you with 743 hours to spend doing whatever else it is that you want.

The power of your budget

Knowledge truly is power, and when it comes to your money there’s no greater source of knowledge on where your money goes than what comes from your budget. Use the Bill Stark Lazy Method for Budgeting to reduce the work and make it pain free to get that information and set up your budget. Determine what your financial goals are for yourself, and then figure out how you can achieve them with what you’re spending. Best of all learn exactly what you’re spending on and figure out if there are any areas you feel comfortable cutting to meet those goals. With a budget you have the knowledge and control over what you spend and where you spend it.