How to Stay Out of Debt, Make a Budget, and Stick to It (Part 2): Simple Enough Steps to Fit on the Back of a Napkin



If our financial lives are lived on a boat, then when your expenses = income, you’re captaining the S.S. Complacent. That can hurt you in the long run if you don’t make some simple changes.

Read on to see my back-of-the-napkin steps to take you to the next level.

I want to continue the boat imagery from the previous post, when your expenses > income. (For today’s post to make more sense, I suggest you read that post first.)  


Some boats are cooler than others.


Now, if you and I were sitting down and discussing your finances and your expenses exceeded income, my goal would be to stabilize your financial boat and level-you-up to where your expenses = income.

Using the concept of Kaizen (Japanese for “continuous improvement”), your first mission is to remove the large boulders that threaten your path, then the medium-sized boulders, and finally the pebbles.

Let’s say you’ve removed your large financial (and habit) boulders. The remaining ones are medium-sized. The medium-sized things have now become your big boulders. You know you’ve reached this level when your expenses = income.

Congrats! You’ve cleared Level 1.


Welcome to Level Two.

Big financial boulders are obvious and urgent. However, when your expenses = income, you can be lulled into complacency and miss the treacherous boulders lurking underneath. All is not yet smooth and clear.

And by expenses = income, I don’t mean that every month, it just so happens that you spent the $4,687.51 you were paid, down to the penny. Rather, there will be some months where you’ve spent a few hundred dollars more than you made (which is reflected in your credit card balance), and other months where you have a few hundred dollars extra. Get out of those choppy waters by following my back-of-the-napkin tips:

FullSizeRender (9).jpg

(This was fun. Please excuse the hard-to-read parts.)

  • Do you still have credit card bills you can’t pay off in 1 month? Steer left.

  • Can pay off your credit card bills down to zero every month? Steer right.


If you’ve steered left, please consider rereading the first post of this series for tips on reducing expenses and entering the whirlpool of the debt reduction cycle. Once you’ve gotten to the point where you can pay off your credit card balance in one month, every month, and find yourself with consistently more dollars in your account from lower debt expenses and cutting non-essential expenses, then steer right.


  1. Start giving to causes you believe in. It will make you happier. I’ve written about giving pretty extensively. Read this post to see the power of giving is great for the world and even better for you. 
  2. Start building up your cash reserves. Build it up until you have enough (in that new savings account you’ll never touch unless there are extreme emergencies) for 6 months. Only break the emergency glass on this account if you’re suddenly unemployed, have unforeseen medical bills, or your roof collapsed. Once you hit 6 months, stop putting money into this account. Instead, increase your giving and investing so that your money can start earning money. Tip: If you lower your monthly expenses, you’re also lowering the amount you need to reserve. You’re also speeding up the time it takes to save up for that reserve.
  3. Max out your participation in your 401k. Why? Not only is it savings but it reduces your taxes and forces you to defer withdrawal of your savings. (Did you know the best thing you could do for your retirement portfolio is to reduce your taxes? I might discuss it in a later post.)

Level 2 Budgeting

Now you’re ready for a budget that is:

  • More oriented toward creating a balance between spending, saving, and giving
  • More granular in your expenses to find more areas to optimize
  • Better suited to seeing your spending and savings trends

This is a similar version to what I’ve created to track my own finances and, for me, has been key to helping me optimize my finances.

Level 2 Budget January February March
Income (take home pay) $4,650 $4,650 $4,650
Variable Costs:
Credit Cards $240 $200 $160
Groceries $600 $580 $615
Eating Out $200 $240 $190
Household Items $150 $135 $165
Clothes $100 $75 $50
Other (Gas, etc.) $50 $30 $25
Fixed Costs:
Mortgage/Rent (incl. taxes/ins) $2,000 $2,000 $2,000
Car (finance/insurance) $450 $450 $450
Utilities $500 $400 $400
Life insurance $85 $85 $85
Monthly Cash Flow $275 $455 $510
Cash Snapshot:
Building Cash $275 $540 $950
Extra Credit Card Payment $100 $100 $100
Giving $40 $0 $50
Investing $50 $0 $50
Ending Cash (Reserves) $85 $440 $750
Reserve Snapshot:
Average Monthly Expense $4,375 $4,195 $4,140
Reserve Goal (6 x Average) $26,250 $25,170 $24,840
Actual Reserve $85 $440 $750
Amount Until Goal Reached $26,165 $24,730 $24,090

In the previous post, I asked you to consider cancelling your membership and car expenses. See how they’re both in the “fixed costs” category? Reducing those two expenses will have a powerful effect because they are recurring savings, whereas your variable expenses—like groceries and utilities, will vary month-to-month.

Does the above look a little scary to recreate? Luckily, I’ve created a free version just for you. Just subscribe to us via email (in mobile versions, scroll down; in the desktop version it’s on the right margin) or, if you’re already a subscriber, contact me if you want the budget (which will be in Microsoft Excel).

Once you’ve steered right and understand more advanced budgeting, you’ll have cleared Level 2. See you at Level 3.


  • How to Make Six Figures Even Bigger (Or, Avoid What I Did) – just making cents October 17, 2016 at 1:18 pm

    […] know how to make an effective budget? Start here for a simple budget, and here for a more advanced budget. Contact us if you want a free excel […]

  • Scared of Your Finances? How to Make the Monsters Go Away – just making cents October 31, 2016 at 8:00 am

    […] Enter the Virtuous Cycle: cut your expenses → apply savings to debt payments above the minimum → expenses fall → apply even more savings to additional debt payments until debt goes to zero. Want more details? Go here. […]

  • Jackelyn January 26, 2017 at 12:26 pm

    Great post! As I’ve mentioned to you in other posts, I am reshaping my approach to money and benefit from the tips you share on your blog. I tried clicking on the original post, but the link doesn’t seem to work. Please send it to me when you can, I would love to read it.


    Best wishes on your affiliated marketing business!

    • JT January 26, 2017 at 2:04 pm

      Thank you and thank you for the heads up! I fixed the link. Should work now. Also, my offer to customize a budget for you still stands. Feel free to email me anytime at and we can discuss what things are important for you.


Leave a Comment