I’m sure I’m not the only person who hates tracking every dollar they spend, saving receipts, or worrying that they overspend in some predefined category. I spent years trying to track my expenses in Excel by building elaborate spreadsheets. Each time I failed. This is how I realized that a Macro budget was the better option for me.
I kept failing because I was trying to micro budget. My spreadsheets were organized by month and divided in to categories where I could record every transaction to enter or exit my accounts. The problem was keeping them updated took a lot of time, and it was easy to forget about. And once to much time has passed, it becomes such a hassle to update all the numbers to get back on track, so I just ended up giving up.
Macro is all about the big picture, so a macro budget means looking at the big picture of your monthly spending instead of focusing on every penny. For those who are short on time, struggle with organization or have tried other methods without success, this could save you a lot of stress and hopefully even a bit of money.
Make a basic balance sheet
First it’s important to really understand what’s going on with your money. It’s time to get brutally honest with yourself about how you spend it. You need to add it all up, to see if you can make it balance for any typical month. You can do it on paper, with your calculator, or by using Excel if that’s your thing. I searched their template library for “Simple Monthly Budget” and found a great little tool to make this part easy.
Start by entering your typical monthly income. If your pay varies widely, use the lowest amount you are likely to earn per pay period. If you make more some periods, that’s a bonus. For me this is two pay cheques plus Child Tax Credit. Next, enter your fixed monthly expenses. This will be all the bills that are due every month (if your power bill is bimonthly, divide it by two and budget it every month). Do not include groceries, gas or other flexible expenses yet.
Next, subtract your expenses from your income, or let Excel do it for you. The number left over is for all of your flexible spending. You need to feed your family for a month with that of money. Can you keep gas in your tank with that? Is there enough for seasonal purchases? Are you able to put some money towards your goals? This part might not feel like a macro budget, but the good news is you don’t have to do it every month. After you calculate your fixed expenses the first time, you only need to repeat this process if your income or expenses change significantly.
This is where that brutal honesty comes in. It’s pretty easy to underestimate your spending. But doing so will just result in over spending. The point of this activity it to take a good hard look at your financial situation, and decide whether or not it is sustainable long term. If you’re spending a large percentage of your income on fixed expenses, you probably don’t have enough left for unexpected expenses.
Those fixed expenses are the first place you should look to make reductions, so there’s more remaining for other things. See if you can play around with any of the numbers to make more room in the flexible category. To give you an idea, my fixed expenses take up about 40% of my income, leaving 60% for food, clothes, entertainment, debt etc.
Now that you know if you have enough money to meet all your expenses, here’s my simple way of managing them.
All my bills are emailed to me. When I receive one I check my account balance, and when my next pay day is. My goal is to always have enough in my bank account for a trip to the grocery store if I need it, so I chose $100 as my minimum balance. If I have enough to pay the bill, with over $100 left over, I pay it then. If I don’t have enough, I set up a one time automatic payment through online banking for my next pay day. That way the money is gone before I have a change to forget about it or spend it.
Because of this I am always ahead on my bills. Even when a bigger that usual oil bill comes, I know I can cover it, even if it means a little less spending this month. If it’s too big pay it all from one pay cheque, pay half this period and the rest next period.
Now that the bills are all paid, I’ll take a look at what I have left in my account. It could be one or two weeks until more money comes in, so I decide roughly how much I’ll need to set aside for groceries. Next I think about anything else I’ve been needing to buy, and how much money I should allocate for that. Finally, if there is still enough(and at least one week each month there is), I transfer the remainder to my credit card (or invest it when I’m done paying that off). Now as I go about my regular week, I just use my debit card to grab a coffee, pick up groceries, or whatever I had planned. If I run low before my next pay it’s because I over spent, or I wasn’t honest in the first place.
The gist of it is simple: pay your bills and whatever’s left over can be spent as needed. On a monthly basis it is so easy to stay on top of everything, and I almost never get near my $100 minimum balance. Most beneficial I think is that I never worry about due dates or panic about not having money when I need it. Paying bills feels better than it ever did before.
Is a Macro budget right for you?
If you’re pretty good with money but not great at sticking to a strict budget, this type of budget might work well for you. Maybe you earn a decent amount but still struggle to keep on top of all your expenses. Or maybe, like me, you just want a simple, stress free way to manage your cashflow. Whatever your case, I’ve used this method to tackle my debt and I don’t think I’ll ever use a different method.
Let me know what type of budget plan works best for you. Do you micro budget, macro budget or something in between?