Whether you struggle with tracking your spending or simply don’t like making spreadsheets, learning how to budget comes with its own unique set of challenges. “For many, it’s not the numbers that make budgeting tricky, it’s the shame that surrounds the concept of money,” says Lauren Bringle, an accredited financial counselor at Self Financial. “Many people view overspending or debt as a personal failure, rather than an opportunity for growth, and this mindset can prevent people from forging a new path forward with their finances.”
No matter how difficult creating (and sticking to) a budget may be, Christine Wilcox, founder of Letting Go, Living More, says there’s one goof-proof method that will make managing your money a breeze. “A color-coded budget is one where you group together similar items of income, and similar items of expenses, and assign a color to each group,” she explains. “This is an easy way to see where your money is coming from, and where it goes, and can be especially helpful for visual learners or people that have a hard time understanding numbers.”
Gather the right materials.
To get started with color-coding your budget, Bringle says you’ll need a calculator, pencil and paper, and an assortment of highlighters in a rainbow of different hues. “Pick colors that don’t make you feel shamed by your spending, since the purpose of a budget is to create a clear path forward for you to build wealth and work towards your life goals,” she advises. “So if red makes you feel like when your teacher graded you poorly on homework, pick a different color.”
You’ll also need copies of your bank and credit card statements from the past three months. “If you have expenses that don’t pull from those accounts, gather those too,” Bringle says. “They could be bills you pay in cash, or Venmo payments, but they’re necessary to paint a complete picture of your monthly spending habits.”
Define (and assign colors for) your spending habits.
Once you have your colored highlighters and financial statements handy, Bringle says the next step is to make a list of your monthly spending categories, such as bills, groceries, and transportation. “From there, use different colored highlighters and assign each color to a spending category to make a key for yourself,” she says. “For example, maybe blue means ‘transportation’ and pink is code for ‘bills’ like utilities, rent, or mortgage payments.”
When breaking down your monthly spending habits into categories, Wilcox says to keep them as broad as possible. “Be careful not to have too many categories, or all of the different colors might get confusing,” she warns. “I would suggest one color for food items (like groceries and takeout), one for rent and necessary household bills (like electricity), one for transportation (car, gas, public transport costs), one for savings, and another for nonessential expenses, such as restaurants and shopping.”
Highlight each and every expense by color.
Now that you have defined (and assigned a color) to each of your monthly spending categories, Wilcox says you can start highlighting your financial statements line by line, according to your color-coding key. “This immediately gives you a really good picture of where your money is going,” she explains. “For example, you might not have realized how much you were spending on dining out until you see it highlighted over and over again!”
To determine exactly where your money is going every month, Bringle says you’ll need to add up each highlighted payment in a color category, and write down the total. “In other words, add up all the blue expenses, and you’ll get your total for how much you spent on transportation last month,” she explains. “Continue doing this for each color category.”
Make a future budget based on your current spending habits.
Once you have color-coded all of your monthly costs and totaled each category, Wilcox says you can better determine which specific expenses — especially unnecessary ones — you’re spending the most on. “Take a good look at your expenses and if you’re spending more than you earn, or more than you’d like, identify areas where you can cut back,” she advises. “Whether it means canceling a streaming subscription like Netflix, or dining out less, you should be able to quickly pinpoint where you can save extra cash every month.”
Now that you know exactly how much you’re spending on both essentials and non-essentials, Wilcox says you can use this information to create a new monthly budget to adhere to. “The highlighted statements and totals should give you a good idea of what your income and expenses will look like for the coming month(s), so make the tweaks you need to, and write it out for the future,” she advises. “If your goal is to put an extra $50 towards savings every month, you can use the color-coded system to determine where you can free up that cash and plan ahead accordingly.”
Going forward, Wilcox says you can use your new budget and color-coded key to keep better track of your expenses (and check your non-essential spending). “Over the following month, make sure you write down all of your income and expenses,” she advises. “As you write down what you have spent, highlight each expense using your color-coding system, so you’re able to see in real-time if you are overspending compared to your planned budget.”
If possible, Wilcox recommends writing out and color-coding your expenses every single day. “Not only will this make it less overwhelming to budget every month (because you’ve already been tracking your daily expenses), it will help you stay motivated to stick to your financial plan,” she explains.