Here is a formula to try to live by:
Income - Savings - Needs = Wants
This seemingly simple formula actually is saying a lot:
- Save first
- Then meet your needs
- Then spend 'what's left'
Saving first ensures it gets done. It requires specific savings goals over multiple time horizons. Paying yourself first is a lifestyle choice that you can make.
Assessing and 'right-sizing' your true 'needs' goes a long way to controlling expenses. Shelter is a 'need'. Some home choices clearly reflect 'wants'. Food is a 'need'. Eating out every meal is a 'want'.
After you saved and met your true needs then you can spend 'what's left'. 'What's left' is a pile of money for discretionary spending. Is this the month you ski or golf or go for a weekend away? Or is this the month for more basic purchases for clothes or a DIY project?
'What's left' sure beats a line-item detailed budget, destined to frustrate and not be followed.