My wife and I like to budget. It’s no secret that a budget will help you save money each month. Typically, when people talk about budgeting, they’re talking about micro-budgeting. Have you ever heard of a macro-budget?
Understanding where your money is going is imperative if you want to maximize the power of your income. Micro-budgeting is all about micromanaging every dollar of your income on a daily, weekly, monthly level.
What’s macro-budgeting and which is better?
Macro: Large-scale; overall
Micro: Extremely small
A macro-budget is much less detailed than a micro-budget. It’s the bigger picture. Imagine looking at the Earth from the perspective of the space station.
You can’t see all the activity, but you can make inferences about the overall wellbeing of the planet via the lights of the cities, hurricane formations, wildfires, etc...
A macro-budget is similar in that it’s planning for the entire year.
When Kayla and I are determining our macro budget we do the following:
Gather information about the previous year (income & expenses)
Make adjustments to income & expenses (be conservative)
Identify investment goals and priorities
Identify big expense plans (vacation, appliances, etc…)
Ensure your planned expenses are below your expected income
Remember: We promote an every dollar budget. Where every dollar gets put to work on bills, groceries, investing, emergency fund, etc…
My bachelor’s degree was largely based on chemistry and biology. We spent the majority of time looking at the micro. Organisms and chemical compounds at the tiniest level. No wonder why I’m so crazy about our micro-budget.
A Micro-Budget is a microscopic look at your finances. Typically, on a daily, weekly or monthly time frame. Similar to being a micro-manager, you’re watching and making plans for each dollar of income.
When Kayla and I are Micro-Budgeting, we do the following:
Determine household income and expenses for the month
Plug our numbers into Dave Ramsey’s everydollar budget app
Ensure every dollar of income has a purposeful expense
Check our budget weekly to ensure we’re not overspending
Identify our successes and failures at the end of the month
Micro-budgeting sounds like a lot, but maximizing your money requires mindfulness. Being mindful of your income and spending habits is the foundation of making changes that will change your financial situation.
Take a look at our 2020 Budget Domination Plan for our Family of 5.
You Should Micro-Budget AND Macro-Budget
Macro-budgeting is most effective earlier in the year but can be done at any time of year. Planning for the future at a higher level will help you make sure you’re micro-budget is on track and sustainable.
If this sounds overwhelming, it’s not. You can micro-budget in about 15 minutes if you have the information available. If you aren’t yet budgeting at all, then a macro-budget is a perfect place to start.
Here’s how you can get started budgeting today:
View your previous month’s W-2 Paystub (or equivalent)
View your previous month’s checking account transactions
See how it stacked up. Did you spend more than you earned?
Now, plan for the next month
One Without The Other
Here at FIREtheFamily.com, we are after efficiency. Efficiency is defined as the ratio of the useful work performed in a process to the total energy expended.
We want to see a reward or benefit for every second of attention we give our finances. Simply staring at your bank account would be completely inefficient. In order to maximize our financial efficiency, we need to take complete control of our finances. It' starts with a macro-budget.
A macro-budget will give us a 30,000 ft view of our financial situation for the next 6-12 months. We need to know that the numbers we are going to use to plan our micro-budget are going to work.
If you micro-budget without planning for that $2,000 summer vacation you’re planning, and that new $1,500 fridge you need to replace, you’re going to be spinning your wheels on a scale you might not notice. It’s great you’re able to save $3,500 in 2019, but you spent it all on the scenario above… You didn’t save anything in reality.
I recommend taking a look at your macro-budget, plan for the next 6-12 months and using those numbers to drill down further and implement an every-dollar monthly budget.
Your Family is a Business
So many people don’t realize they’re running a business. Having a family that you’re responsible for is the closest that many people will ever get to running a business.
Complete with income, expenses, capital improvements, investments, assets, liabilities, etc… Running a household is akin to running a business.
Budgeting Will Reduce Debt
Once you take a mindful approach to your finances and implement a budget, you will notice a change in your financial life. You’ll want to take on less debt, and it’s likely you’ll want to pay off current debt.
Creating a budget brings your financial life to the forefront. Instead of it being an afterthought in the back of your mind, it’s thrust into the limelight and most people won’t like what they see.
$21,000 in student loans, $15,600 car loan, $3,100 credit card balance. It’s not a pretty picture when you put it on display. This alone is enough to empower many people to change their financial situation.
If you’re struggling with debt, or you have a partner with bad spending habits, starting with a macro-budget and then progressing to a micro-budget can be an effective tool.
If you want to improve your financial communication with your spouse, you can start today with the Money Marriage Checklist. Download it for free HERE!
Micro-budgets and Macro-budgets complement each other. You can do one without the other, but you’re not being as effective as you could be. If you’re only going to do one, micro-budgeting has the greater potential to improve your financial situation and spending habits.
Budgeting boils down to financial communication. If you’re married or share financial responsibility with another person, it’s up to you to drive financial communication. Simply being here on this website tells me you’re on the right track and asking the right questions.