Stop budgeting and start using a hit list.
I hate budgets.They are a pain in the ass to put together and, once you do, they just sort of sit there. They’re like a line in the dirt you just can’t cross, but often do. It feels like you’re trapped between the lines. It may remind you of work since it involves spreadsheets! That’s probably the reason most people don’t put together a personal budget and hold themselves to it.
I’ve experimented with different budgeting tools like Quicken, Mint, and various sad spreadsheets, created with good intentions and never updated or opened again. I tend to do much better with actuals. As in, what did I actually spend and what can I do about it. I’m calling this “action-based budgeting.”
I want it to be simple, something that can be done in an hour on a piece of paper and pay benefits all year. Less = More.
What is a hit list?
These are expenses you’re going to attack, both short-term and long-term. The expenses are going to take a hit so you don’t.
How to create one.
Go through your bills, your bank statements, any budgeting software you’ve used, and identify your top 10 monthly expenses. These should be recurring expenses like car payments, utilities, and grocery bills. If you’re like most people, you probably have a lot more than 10, but only pick your top 10 expenses. It’s okay to put some of these together and come up with an monthly average for the year, for instance, dining and entertainment.
You will find surprises.
The reason you only want to pick your top 10 is that they most likely represent the majority of your spending, They’re something you can quickly compile and take action on versus trying to create a budget for all of your expenses. Long lists of budget items are where a lot of people just give up, so just pick 10. You can leave taxes and savings contributions out for now.
Once you have your top 10, multiply each by 12 and put them in a list. Even if you’ve done a budget before, I can promise you there will be a few surprises in there. This is one of the ways I found out that our grocery bills were way out of hand. You can also compare them to what other people spend here.
The Hit List
Now that you have the top 10, and you are fairly confident they’re accurate, you have your hit list. Here’s where the action part comes in. Next to each of the 10 items make two columns. Label the first one short-term and the second one long-term.
Here you start to flex your frug muscles. In the short-term column, list one thing you can do to attack this expense immediately. In the second column, list one thing you can do to hit this expense hard, long-term. It’s only 10 items so you can pull this off over a cup of coffee or two.
Here’s one example from my list.
When you’re done you’ll have an action-based budget. You’re picking your 10 largest expenses and taking short-term and long-term action to lower them. You’ll be comparing your results to actuals so it wouldn’t hurt at this point to start using some free automated tracking online from Mint.com or Personalcapital.com (my recommendation).
The all-important item number 11
Savings. There’s no use in doing this exercise if you’re just going to spend the money on something else. Total up what you’ll save and actually save it. Make sure you have a short-term and long-term goal for those savings. These should be big things like “retire early and start my own business”, “travel to Africa and write about it”, “execute my secret plan for world domination”. Have some fun with it but make it big, make it real.
Whenever I execute a successful hit on an expense, like recent wins against family mobile phone plans, or cable TV bills, I make sure I take note of it and record the savings. The long-term goal is to move some of these items out of the top 10 for instance paying off a car and keeping it for another 10 years, or staying out of stores and crushing your household expenses by becoming an Amazon expert.
After you worked on this list, and started some sort of online tracking for these 10 items. you’ll find yourself more aware of them, which by itself can lead to some significant savings long-term. Just revisit your list once per month. That’s it. Websites like mint.com and personalcapital.com allow you to highlight certain expenses and change the names that credit card companies or banks often give them making it more personalized and easier to keep up with. The whole idea behind the 10 item hit list is to keep it simple and effective by focusing on the big items you can impact.