In the last two blogs, you have done the foundation of organizing your finances.
It all begins with knowing your metrics and doing a health checkup on your finances.
Once you know your metrics and the gaps that you have to fill, convert the gaps into SMART goals. Additionally, prioritize your other life goals as SMART Financial goals.
Then after your plan is in place, it is time to put it into Action. Without action, a plan is just a paper and meaningless in helping you transform your life.
The Action part is the Macro Budget that we setup. No more writing down micro expenses, coupon cutting and fighting with your partner on shopping bills.
Note that the SMART planning process has already taken into account the following.
- M : The amount per month you have to save, spend or pay derived from S and T.
- R: Reality – Is the monthly amount affordable in your paycheck/income?
- A: Action plan – Where to put/send the money, opening the account etc.
For each goal, we will assign it to one of the buckets – Expenses, Debt, Savings, Investments.
What is a Macro-Budget?
Many budgeting tools ask you to assign money to each small category like groceries, car, utilities and so on. Such budgeting tools like Y.N.A.B or Mint are very useful in tracking your micro-level budget and expenses.
But our philosophy is you do not need to take the stress of micro-budgeting. Through the SMART plan, you have the macro level partition of your paycheck and just need to keep filling each bucket by sending parts of your paycheck to respective accounts.
By partitioning your money, it automatically binds you to commit only a portion to be spent. For example, if 50% of the paycheck goes to the expenses account, then all you need to check every month end is if your credit card bill has exceeded that amount or not.
If it exceeds, you have a spending problem and now you may zoom in by setting up a micro budgeting system for a couple of months. Then as soon as you get back on track, you can ditch the micro budgeting system.
Similarly, you can keep track of each of your goal buckets to see where you have reached. You planned to save $10000 by Dec to take that Hawaii vacation and in July, you have $6000. Hooray, you are on track!! Your credit card debt is being paid down $300/mo, so in July it is already $1800 down. Another win!
This credit card account was simply one of the goals in your SMART plan and the Macro budget treated it like a bucket by sending money to it regularly.
You have a long term investment bucket too. This is a Macro Budget bucket that only receives but never allows you to withdraw (hopefully your other buckets are working).
How does a Macro Budget help you to grow?
The Macro Budget is designed to take you to the next level of your life – career, health, wealth and relationships.
Relationships – By not focussing on expense control (aka micro budgeting), you can spend more time with your loved ones and set financial boundaries, meet financial obligations and focus on the relationship.
Career – By proactively planning your life goals through SMART planning, you can create a goal and bucket to invest in yourself and thus your career. I have an Education Fund which is used to buy courses, coaching and books.
Wealth – With macro-budgeting, investing need not be complicated. We have a forever bucket in a brokerage account or 401k, where only deposits are allowed and no withdrawal till your old age. Time, automation and low cost are proven to be the best wealth building factors.
Health – Finances are a source of worry for most people. By organizing things in a macro budget format, it frees you from worrying about spending and managing budgets etc. A worry free mind with progress towards all goals automatically is itself a healthy proposition. Moreover it frees your time for going to the gym, meditating and keeping that stress away.
You zoom into the micro budget only when things are off-track and get back to macro budget as soon as possible.
Conclusion
In this blog, we have discussed how the Macro budget can help your finances with:
- Implementing the SMART plan
- Automation is the key to controlling mindset and behavior
- No more nitpicking, micro budget, coupons
- Leading to Growth mindset – macro level thinking
Macro budget leads you to the Financial Growth mindset which we will discuss in the next blog.
