Budgeting without the budget

Budgeting without the budget

One of the biggest excuses I hear from people for what’s holding them back from improving their finances is a budget. For many people, budgeting is either too hard or too time consuming and they give up before they even get started. For other people that use online budgeting tools like Mint.com, budgeting becomes so automated to the point that it doesn’t mean anything. I hear those concerns. I realize that not everyone finds budgeting as fun as I do and that budgeting can actually be quite the burden. I’d like to turn this hesitation upside down and insist that you don’t let a budget keep you from improving your finances. It’s quite possible to achieve financial freedom without one!budget

A budget is simply a tool

Budgets aren’t anything fancy and they aren’t anything that should take up a huge chunk of your time. Whether its’ a simple Excel document like me, a running ledger with some old fashioned pen and paper or even something more 21st century like an online budget system, it’s all just a tool. A budget won’t get you out of debt, save for your retirement or even stop you from saying no to that impulse purchase. A budget is simply a tool used to lay out one’s income vs. one’s expenses; both planned (rent) and unplanned (going out to eat tonight). The best budget is one that works for you, and if you don’t see the need for one or have the time to work it, then simply forgo it!

One simple equation

Income = Savings + Expenses. It’s such a simple equation that people like us screw up on a monthly basis. We lose sight of this cardinal rule and overspend while saving less. We often don’t really know how much we spend and hope that there’s enough in the bank after rent/utilities to pay off the credit card. It shouldn’t be that way. When you focus on the big equation and let it guide you, things will start falling into place. Learn how much your monthly income is by taking the past couple of paychecks and getting an average number that you can bank on. Subtract out fixed expenses like rent and utilities, put a little (or a lot) in savings/retirement and then the rest is yours. Learn what that number is, whether it’s $500 or $5,000 each month. This amount is the amount of money you can spend without breaking the equation. It’s when we break the equation that we get into trouble. With that number in mind, either use cash (taking half the amount out when you get paid) or a debit card to make sure your total balance doesn’t get below what it should be. Alternatively, use a credit card and just make sure your balance doesn’t go above that magical number. It’s that simple.car loan

Commitment over calculations

Dave Ramsey has famously said that financial freedom is 10% head knowledge and 90% behavior. A budget falls into the 10% category, so in the grand scheme of things, isn’t really that important. What is important is the behavior. Taking that magical number (Income – fixed expenses – savings = what you can spend this month) and sticking to it is the tricky part. A fancy budget won’t curb your spending habits but committing to not overspending will! Having a simple plan using the magical equation and a little commitment is all it takes.

If a budget is what’s holding you back from improving your finances, forget about it! Completely forgo the whole process and just commit to spending less than you earn each month. Once a week or so check your bank or credit card balance and just make sure it’s in line with your magic number. That’s all it takes!

However, if you are in need of a good budget, check out the one that I personally use! 

2 Responses

  1. […] Awesome, if you’re still reading I assume you’re ready to take a baby step towards financial freedom. First thing you should do is figure out your income and expenses (both fixed and generally what you spend). Take stock of what your month normally looks like. After you’ve done that, set some baby step goals for yourself. How’s your emergency fund look? Start by saving $1,000, then build up to 3 months of expenses. Allow this process to take time, start by saving $25, or $50 per paycheck. Once you’re there, start focusing on other goals. Have a 401(k) at work? Contribute at least up to the match, if they offer one. If you don’t you’re just throwing away free money, and who does that? Finally, start building up a savings account, make sure it’s a high yield account (a lot of online banks pay >2%) and save $25, $5, $100 or whatever feels right to you. Congrats you’ve made a budget! […]

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.