What Is Napkin Budgeting and How Can It Help With Your Personal Finances?
Thinking about your own personal finances is a task most of us put off as long as possible. Writing down and working out a budget seems daunting and, besides, how would you even know where to start?
It turns out, mapping out your own personal finance plan is easier than you may think. In fact, some experts say budgeting can be done on something as simple as a napkin, hence the term "napkin budgeting."
Napkin finance (or budgeting) is a term coined by Tina Hay in her book Napkin Finance: Build Your Wealth in 30 Seconds or Less. Her theory on simplifying personal finance resonates well with visual learners and those who have struggled to learn financial concepts in other complex ways.
Read on to learn more about napkin budgeting and how you can implement this simple concept today to take control of your personal finances.
Napkin Budgeting Simplifies Your Finances
When you think hear the term "napkin budgeting," think of it as a figure of speech coined for the concept of quickly getting your budgeting under control by beginning with a simple sketch. At its core, it is about getting started by visualizing your financial habits.
Napkin budgeting resonates with people because it starts with the basic concepts of understanding how money works in all areas of your life. Hay suggests you can use this tool for budgeting your spending, building an emergency fund, or interpreting your taxes, credit, and investing.
Napkin budgeting is about a lot more than writing numbers on paper. It also stands for the concept that more complex topics can be broken down into simple visuals that others can easily grasp. When it comes to personal finances, this form of budgeting might be a perfect fit for you.
How to Get Started
Before you can begin thinking ahead to investing, retirement, and planning for an emergency, you should take a look at your overall budget. Once you see where your money goes, it becomes easier to move it around to plan for different monetary goals.
One way to budget is to stick to the 50-20-30 rule. Using this form of budgeting suggests you put 50% of your earnings toward your essential costs (bills, insurance, food, utilities, debt, etc.), 20% toward your savings and investments, and 30% toward things you want (travel, clothing, dining out, entertainment, etc.).
To represent this in napkin budgeting, you would visually draw a pie chart with a 50-20-30 ratio, and write in the graph how you'd allocate this money for each section.
How Napkin Budgeting Can Lead to Healthy Habits and Debt Repayment
If using more complicated ways to get a handle on your personal finances hasn't worked in the past, then napkin budgeting might be for you. Handling your finances alone is stressful and can be scary. However, once you see your budget broken down into an easy-to-follow graph (you can color code it, too, if that helps), you may find it easier to adopt healthier financial habits.
It seems the act of simply writing down your budget can start you on the path toward financial freedom, as a recent survey suggests Americans are taking control of their personal finances now more than ever.
The key is to not stop with one simple napkin budget. Once you visually represent where you should allocate your budget, you can drill down into other areas you wish to tackle. For example, if one of your goals is to save money, create a napkin finance sheet to help you learn more about investing in the stock market. From there, you can break down the investment types you're interested in, and so on.
See additional tips about Napkin Budgeting online, or visit our Finance Academy for financial topics that can help you stay on budget.