Budgeting has a bad reputation. A lot of budgets start off with tracking every purchase for a period of time, and aren’t much more specific beyond making a plan to cut back. Other approaches might start off with a hundred categories that you immediately feel the need to use even though you didn’t before. Sometimes they’ll recommend going with certain percentages for different types of expenses which might be part of the reason people avoid making a budget (math).
Any type of proactive budgeting is better than nothing, but there is a method that addresses a lot of other budget’s shortcomings. It’s called the One Number Strategy, and its entire focus is a single number that represents what you can spend. It’s just one number that you focus on weekly, but there’s a few steps to take in order to find it.
This one number is like cash in your purse or wallet, spend it on what you need, spend it however you want. But most importantly, you know that all of your other bills, requirements, and goals are being paid, that everything is being taken care of… on their own, without you babysitting anything. As your one number goes to zero, you know you have less and less to spend, until it resets at the beginning of your week. No juggling between multiple budgets or envelopes, just one intuitive declining balance.
Finding the amount of money you can reliably, safely spend is huge. An exact number, that gets replenished regularly just like your paycheck does is incredibly significant regardless of your financial situation. Stick to spending this set amount and you’ll never get into debt. Already in debt? In the chapter on debt, you’ll see how this number is critical to getting you out.
At first, using one number every week may seem a little too rigid for all the random, miscellaneous spending we live with every day. But that’s only because we’ve been conditioned to think that way. Commercials, trends, fads, reviews on the latest iPhone a hundred times in a week can certainly make it seem like one constant amount of money is too rigid. Also, your one number is for typical spending, not for large and unexpected expenses like new tires or a trip to the vet. Those kinds of things should have an amount set aside in another part of your budget. But the reality is that there is a number that represents pretty well what you need day in and day out, and we’re going to find it.
– Adapted from Minimal Money Mindset by Damian Cardoso, 2019
So how do you actually find it? You start by organizing your income and expenses. Here’s a brief overview:
Organize your expenses into four different categories
- Main
- Spending
- Reserve
- Savings
Main is for fixed, permanent expenses. Like your rent or mortgage, water bill, car and insurance payments.
Spending is for variable expenses like the food you eat, both for groceries and dining out, gas, tolls, going to the movies or cold medicine.
Reserve is for irregular expenses like birthdays and holidays, unexpected stuff like new tires or a car repair. Maybe for insurance that you pay annually.
Savings is the money for your long term goals and dreams. Its for a big trip, new car, or your new home. Its for your own sense of security and also for retirement.
So what about your one number? We tend not to accidentally overspend on mortgage or insurance payments right… Your one number is going to be what the spending group adds up to. Focus on that number, align your behavior with that number every day and week. The other groups and the rest of your budget are locked into place.
