Have you ever heard of the paradox of choice? It's an idea that suggests we have an easier time making decisions and taking action when there are fewer options to choose from. You may have experienced it sitting in front of a particularly expansive restaurant menu—fewer choices are almost always better.
It applies to restaurant menus and toothpaste aisles, but also to you–sitting down with your laptop and trying to research ways to get your household budget back on track. So I took a shot at simplifying all of the best personal finance advice into a choose-your-own-adventure, three-course money menu.
First Course: Creating a Budget
You need to start by creating buckets for every expense.
Option 1: Review Past Months
A service like Mint can help you do this, but you can do it on your own, too. Go back over 4-6 months and roughly add up what you typically spend in a month on different categories, like rent and utilities, transportation, food and shopping. Take the average over the months and make that your monthly budget for spending in each of the areas.
Option 2: Draft From Scratch
Decide that you're going to spend no more than $50 or $100 on groceries this week, and stick to it. A cash envelope system will help here: Put your monthly or weekly budget allotments for each spending category in different labeled envelopes. Seeing the cash in your hands will help keep you accountable.
Second Course: Cutting Expenses
The best way to make money is to spend less.
Option 1: Reduce One of Your Largest Expenses
Take a look at where most of your money goes–loan payments? utilities?–and think of ways to reduce that bill by a little bit. Call your lenders and negotiate a lower interest rate. Try to cut down on your electric bill by not turning on the A/C until July.
Option 2: Completely Cut Out Your Smallest Expense
Small amounts add up. You finished House of Cards, can you pass on Netflix for a little while? Go without Spotify premium? Take a look at the smallest expenses in your budget and see which you can completely do without.
Third Course: Padding Your Savings
A healthy bank account has a bit of padding for emergencies.
Option 1: Little-by-Little
You can passively save big chunks of money by chipping in tiny amounts over time. Lots of banks offer a program that helps with this–the bank rounds up or adds a dollar to every debit card transaction and puts it into a savings account. But more and more people are getting into Digit–a money app that squirrels away money for you based on a proven algorithm that removes money from your account when you can afford it.
Option 2: Lump Sum Off the Top
Automate your savings by having a chunk of your paycheck deposited right into a savings account on pay day. You'll never miss it.
Which budget strategies worked best for you?