Money at 30: My Big Budgeting Confession
Being a personal finance writer/nerd, I often end up talking about a number of the finance fundamentals, such as budgeting. In the past I’ve reviewed tools like Mint, talked about the old-school envelopes method, and many other topics that revolve around the idea of building a budget and sticking to it. That’s why today I thought it was time to reveal something shocking. The truth is that my wife and I no longer maintain a strict budget.
Before you freak out, this isn’t like I’ve fallen off the wagon and abandoned all I learned since my “financial awakening.” Instead my wife and I have taken our experiences and found a system we liked better. While I’m certainly not the first to come up with the idea of a “no budget” budget, we did kind of arrive at a style on our own, based on figuring things out for ourselves along the way.
With that, let me explain myself and detail what my wife and I use instead of a budget and why this plan works for us.
Our “No Budget” Budget Plan
Why don’t you keep a budget?
At this point, my wife and I know what we can afford, have checks in place that prevent us from splurging, and are vigilant about saving. More importantly, in place of a traditional budget, we do have savings goals we adhere to. This not only mandates how much we should be contributing to our retirement accounts each year but also informs how much we should be socking away with each paycheck. In other words you could almost think of it as a reverse budget where we’re dictating how much we should save, not how much we can spend.
So you don’t pay attention to what you spend or earn?
On the contrary, we actually spend a lot of time monitoring our money and our spending. This includes using apps like Clarity Money and Quickbooks Self-Employed to keep up on our transactions history, helping us to not only watch out for fraudulent charges but to also prevent us from getting carried away on spending. On top of that we also pay close attention to our bank balances, ensuring that we’re meeting our savings goals.
To that point, we’ve actually taken an even greater interest in our balances lately as I’ve been adamant about us maximizing the benefits of each account. Thus we’ve established a money flow chart, if you will, that shows where we should be placing our cash and how much should be in each account. This strategy is helping prevent us from leaving our cash in an account that earns no interest and move our extra funds to somewhere that will be more beneficial.
How do you prevent from overspending?
As I’ve discussed before, my wife and I do have a few checks and balances installed to keep our spending in line. Perhaps the biggest factor keeping us from overspending is just the emotional response that’s become instilled in us and brings anxiety any time we consider buying anything. It’s amazing how quickly we can now go from “wow, we have to get this!” to “nah, that’s not really worth $X.”
Beyond trusting our frugal nature to prevent splurging, we have a rule between us that, if one of us wants to spend more than $50 on something, they need to tell the other. This and discussion gives us time to consider pros and cons as well as look for coupons, deals, and more. We might also elect to subsidize these purchases with “found money” from our credit card cash back balance or other windfall sources, making the decision a tad easier.
Do you budget at all?
One area where we do still employ a budget is when we travel. This isn’t so much because we think we’re going to get carried away but it lets us prepare for the extra costs we’ll be experiencing while away. In other words having a travel budget mapped out ahead of time makes it possible to experience everything we want to on our trip without sacrificing our savings goals.
Are you suggesting that no one really needs a budget?
Let me be clear here: I do 100% believe that budgeting is an essential step when you’re trying to cut your spending and adopt a more frugal life. In fact I’d recommend anyone start with a budget that is helpful yet not too painful and then adjust it over time. However after certain “money milestones” have been hit — such as being debt free, having an emergency fund, and more — you may find that sticking to a line-by-line budget is no longer necessary. That might not be the case for everyone, but I think it’s worked well for us.
A common misconception about budgeting is that you need to cut out all the fun things. In actuality the key to successful budgeting is to think of it as a tool to help you prioritize what’s important to you — e.g. travel, hobbies, etc. The same is true for our (non) budget as we’ve been able to make spending room for the things we enjoy most, while still working toward larger money goals down the road. Remember: personal finance is personal for a reason — as long as your budget or non budget works for you, you should probably keep doing it.