The pay yourself first approach to budgeting is less precise. With anything less precise, it does leave more room for error. Having at least a few thousand dollars saved up in an emergency fund will allow you to manage unexpected month-to-month spending fluctuations.
Throughout our debt payoff journey, we never had a traditional budget. A traditional budget involves writing down your expected expenses every month and tracking it every month.
If you are in a situation where you do have some disposable income to save, invest, or paydown debt, then you can simplify the way you manage your finances every month. Below is a step-by-step approach if you decide to use the Pay Yourself First approach to budgeting:
Having a baseline will allow you to determine the current gap between income and spending so you can develop a plan. You’ll have a sense of how much money, if any, is left over at the end of every month that can be attributed to investing and saving.
Now that you’ve tracked spending for a couple months and determined about how much you can invest and save in a given month, it’s time to set up your automated payments. This will be the key to success if you use this approach. You won’t get this perfect at first but the key is to get started.