How I use LearnVest’s One Number Strategy: My Elegant Budget

Pile of pennies
Coin rooster deciding where to put his hard-earned cash

I’m a huge fan of LearnVest, a website about all things personal finance. They have great articles on retirement planning and investing. My favorite concept of theirs is the One Number strategy for creating a budget.  I think it’s an elegant way to create some budgetary guidelines without being too restrictive on your spending. Maybe one week I eat out a lot and go to Starbucks every morning.  The next week I buy a new pair of shoes and bring PBJ to work for lunch.  The next week, I buy lots of fancy groceries so I can bake seasonal cupcakes to bring to a party:

Easter bunnies!
They are in awe of how simple yet effective this budget system is.

These choices are fine within the context of these guidelines, and you don’t need to plan those details beforehand. I love that about this budget system: I just live my life, but every day choices happen within the guidelines, so I know my bases are covered which makes my daily financial decisions totally unstressful!

How I use the One Number strategy:

1. I add my rent, utilities, cell phone, recurring monthly prescriptions and subscriptions, and monthly charitable donations together.  These are my FIXED COSTS.

2. I add my life insurance premium, retirement contributions, emergency fund amount, travel fund amount together to get my FINANCIAL GOALS AMOUNT.

3. I add my annual membership amounts, credit card annual fees, club dues, and an amount set aside for gifts (I set this at like $20 a month, so $240 for a year; I don’t really keep track of this but it seems like a good idea to set some aside for holidays and birthdays). These amounts are added together and then divided by 12 to get my monthly amount for NON-MONTHLY EXPENSES.

4. Finally, I add 1, 2 and 3 together to get a big number. Then I subtract that number from my monthly take-home pay amount to get my MONTHLY ONE NUMBER.  I further divide this number by 4.3 (since some months have more than 4 weeks) to get my WEEKLY ONE NUMBER since I find it easier to keep track of my spending on a weekly basis. LearnVest calls this number a flex spending amount, which for me is just under $150.

The ‘flex’ part of this number is that I can do whatever I want with this money. Since I’ll generally either spend more money on groceries or eating out, that’s a choice I can make within this amount. I set up automatic transfers for certain things like retirement contributions that happen a day after my paycheck comes in. That’s another way that the money in, money out system I use is quite unstressful. One less thing to worry about!

LearnVest’s article on this system can be found here.

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