The four-color budgeting technique anyone can do

For as much as people complain about budgeting it’s a miracle we aren’t all up to our necks in debt… oh yeah, we are. Budgeting is like exercise. Nobody wants to do it, but we all need to. And just like exercise, not one type of budgeting is for everyone. You have to find what works for you. There is no one budgeting technique that will motivate everyone equally. The latest craze is budgeting apps. I personally don’t like them, but they may work perfectly for you. To each his/her own. What I’ve learned about budgeting in the last 15 years boils down to this: it really doesn’t matter what you do, as long as it works for you.

That being said, if you are in the camp of people who don’t budget at all, or you budget but don’t feel like your current technique is working for you, I’ve got a new possible solution for you. It’s super simple. All you need is your bank statement for the previous month and four different colored highlighters. Oh, and you’ll probably also need a calculator (read: your phone).

  1. First Color: Highlight your beginning and ending balance. Did you spend more than you made? Or did you spend less? This is your shortage or surplus.
  2. Second Color: Highlight your deposits. This is your income. Make note of your total.
  3. Third Color: Highlight your recurring monthly payments. Mortgage, rent, utilities, internet, etc. Note the total
  4. Fourth Color: Highlight the most common purchase. This will most likely be groceries, dining out, or purchasing household items, etc. Total it up. If you are spending the most on groceries, this becomes the category you will attempt to reduce in the upcoming month.

Going through this exercise should bring up a lot of questions. Are you spending too much on recurring monthly bills? Are dining out too much? Are you wasting your monthly surplus? Determine what you want to work on this month and set a specific goal. This month I want to spend $100 less on groceries. Or, this month I will call two service providers in an attempt to lower my monthly obligations. Set your goal, and then set a calendar reminder to do this exercise again in a month. This is budgeting at its most basic, effective form.