One of the most helpful ideas to come out of the money program for me is the idea of three budgets or three financial lifestyles. A lot of our program is focused on developing peace of mind around money and this activity really helps with that.
Budget 1: Bottom-line sufficiency or how little can you live on?
In this budget, you list all of your basic expenses but none of the luxuries or emergency items. Housing, food, taxes, insurance, utilities, work-related transportation, school loans, etc. You're looking for absolutely the least amount you can scrape by on and survive. Most of us discover that this figure is much lower than we think, that we can actually live on very little. However, if this is a big amount for you, our financial teacher says to look at several areas: are you over-housed (living in a too big, too expensive place)? Do you really need a car payment? Do you have a lot of credit card debt? All three of these create a lot of financial stress.
Budget 2: Comfortable sufficiency
This budget takes Budget #1 and adds in some luxuries: eating out, entertainment, vacation travel, emergency fund for vet bills or home or car repairs, replacement clothing. What do you need for a comfortable but not extravagant life? My house cleaner would go in here but massage and facials would go in Budget 3. Each of us decides. If your car is decrepit, a new car would go in this budget. If you're just bored with your ride, a new car goes in Budget 3. You get the picture. Budget 2 also should include any debt repayment and steady input into savings.
Budget 3: Cushy sufficiency
This is Budget 1 plus Budget 2 plus anything else you want to budget for. Work with a clothing stylist? A new wardrobe? A month in Italy instead of a week at the coast? Remember that this is still a budget meant to help you live within your means.
Having this sorted out helps me understand the difference between expenses and discretionary spending.