The premise of the Thinking Budget is that conventional budgeting tools have a fatal flaw: They fail when your spending behavior does not conform to your best intentions. This begs the question:

How DOES one create–and USE–a budget that doesn’t fall apart in the real world?

To provide a practical answer to this question until the Thinking Budget app is available, this series of articles is a tutorial for using a simple spreadsheet-based budgeting solution.

  • We are also covering some key budgeting concepts, so we’ll keep each installment a digestible length.

We hope you find this series to be be helpful to gain more control of your spending. To get started, let’s set the context.

The Problem

The problem we are trying to solve with our budget is to figure out how to spend the correct amount of money at a given time–even when that means spending less money than we currently have.

This sounds incredibly basic, but think about how many times you have been careful to not spend more money than is currently in your checking account, but you were later surprised when you didn’t have enough money left. That really sucks.

These techniques will help you avoid running out of money.

Starter Example

Let’s get rolling with a simple example. Pretend our take-home pay is $3,000 per month, and we get paid on the 1st and the 15th. For monthly expenses, our rent is $1,000, utilities are $200, we spend $400 on groceries, our car payment is $300, gas for the car is $50, we spend $100/month on fancy coffee and restaurants, and we give ourselves $100 for “fun” spending. That leaves us $850 per month for savings goals.

We have a big vacation planned for October, and that is going to cost $2,000. If we save $200 per month starting in January, we will have $1,800 saved up at the beginning of October. We also need an emergency fund; that is money set aside in case we have a big car repair, medical bill or job loss. We know we should have an amount equal to 3-6 months of expenses set aside for this (around $10K in this example), and we are starting the new year with an empty emergency fund, so we need to put as much into this as possible. Let’s allocate the remaining $650 to that. Here’s how that all looks:


Fig. 1: Basic Starter Budget

So far, so good.

Our “total spending” line at the bottom (the proverbial “bottom line”) shows that we are “spending” $3,000–the same amount as our take-home pay. Woo hoo! We have a balanced budget!

But saving isn’t spending, is it?

In fact, we need to make sure we meet those savings goals, so our mindset (and behavior) should be to think about (and act on) savings first. So let’s rearrange our budget to reflect that.

Savings First


Fig. 2 – Savings-first Starter Budget

This is a REALLY important mindset shift. We’ve moved from thinking about having $3,000 to spend to the reality that we have only $2,150 to spend each month.

To make that real, we should configure our paycheck process at our employer to actually deposit that $850 per month ($425 from each paycheck) into our savings account.

If you are already thinking about your own budgeting process as you read this, know that setting up direct-deposit to your savings account is really easy to do. You can probably do it yourself online via your employer’s payroll service (internal or external). I recommend you do that now while you are thinking about it. This is one of those things (unlike benefit selections) that you can change as often as you want, so even if you guess wrong at this point, you can change your savings amount later.

  • Go ahead and do that now; we can wait.

Done? Great! OK, so now let’s actually USE this budget.

The Under-30 Simplicity Rule


Fig. 3 – Spending Discretion

As it turns out, living within a budget is not as analysis-intensive as you might have thought.

This is because we have discretion (i.e., day-to-day choices) about very few spending categories, and the total spending of these categories is pretty small: Under 30 percent as a rule.

In our simple example, it turns out that we have real discretion over just three spending activities: Groceries, Coffee/Restaurants and Fun Spending. Granted, gas may fluctuate if we change our driving habits from time to time, but (unless driving is one of our “fun” activities) gas is largely non-discretionary.

“Groceries?” you ask. “Don’t we always have to eat? How is that a discretionary spending category?”

For many people, in fact, groceries is the largest spending category over which they can exercise discretion. In my case, getting a firm handle on grocery spending is the final frontier. We like eating well–and with healthy ingredients–so this can get expensive.

If you aren’t convinced that grocery spending is something worth watching, I encourage you to do some quick analysis of your bank statements for the past few months. Tally up all your grocery spending (including toothpaste, soap and other non-food items you normally buy at stores selling groceries). Unless you are already a ninja in this area, I predict you will be shocked at how much you are spending.

Back to our example budget, these three categories total $600, which is 20 percent of our take-home income and 28 percent of the $2,150 in net spending available to us. They are also (in this case) exactly 30 percent of our total number categories (including income). In more realistic (less simple) scenarios, you will find that the number of discretionary spending categories will increase only slightly, while the number of other spending categories will tend to increase substantially.

You will likely find yourself having to worry about under 30 percent of your spending.

Having to focus on only these discretionary spending items makes tracking our spending much more tolerable.

The Thinking Budget app will track all expenses (because it can do that efficiently).

  • Focusing here on just discretionary spending is a productivity hack for dealing with a spreadsheet.

Part 1 Review

We have covered these key concepts in this installment:

  • Savings First – Treat your savings goals as the top priority they should be. Configure your direct deposit to sweep part of each paycheck into your savings account(s) so that money is not readily available to spend.
  • 30 Percent Rule – You likely have direct control (“discretion”) over under 30 percent of your spending, so while budgeting manually, focus your efforts on those few discretionary spending categories.

In Part 2, we’ll start using our budget.