Do your New Year's resolutions for 2016 include crafting a workable budget that you'll actually want to stick to? Are you stumped about how to make it happen? One answer is an approach that financial advisor Manisha Thakor, director of wealth strategies for women at Buckingham and The BAM Alliance, calls "joy-based budgeting."
First, estimate your household income — after taxes — for the year ahead. Then, apply what Thakor refers to as the "50/30/20 rule" to that amount.
How does "50/30/20" work? "Fifty percent of your take-home pay in an ideal world goes toward needs, 30 percent ... goes to wants, and the remaining 20 percent ... is for savings," she said.
That formula is the ideal way to allocate spending, but how to get there, practically speaking? "This is where the fun part comes in," said Thakor.
First, you can track your spending. "Whip out a highlighter and ... start highlighting anything you spent money on that didn't bring you joy," said Thakor. "Oftentimes, people tell me just that one exercise alone helps them find literally thousands of dollars in expenses that aren't bringing any joy."
Another technique is taking your household income and dividing it by 2,000 hours — the average amount of time a person works in a year. If your household earns $100,000, for example, divide that amount by 2,000 to arrive at a figure of $50 per hour.
"When you're out and about and you're looking at that list of items you've spent money on, if you see something for $500, you can do the math," said Thakor, and realize you spent — or will have to spend — 10 hours working to pay for it.
"Now you can do a second pass through the list and say, 'Do i really want to work this hard for this expenditure?'" she added.
Budgeting is not about denial or putting yourself in a financial straight jacket, Thakor said. "Joy-based budgeting is all about trying to figure out how to take each one of your hard-earned dollars and squeeze the most amount of fun and joy out of it that you possibly can."
— By Kenneth Kiesnoski, associate editor