You Don’t Need a Budget
Photo: Michael L @mjliao on Unsplash
Want to know a secret? I’ve never had a budget.
You don’t actually need a budget to be financially successful.
In fact, I would say that living without a budget is a financial goal in itself. Why? Because not having to worry about how much you spend on a daily basis is freedom.
If you are someone who is constantly worried about money, could you imagine not having to think about it every single day?
Imagine the comfort of knowing that you always have enough to pay the bills and spend on some things that make you happy. Of course, very few of us will be able to buy everything, but with smart money management, you could buy more things that make your life a little bit better.
Many people treat budgeting like it is a good thing to do on principle; as though it is a goal in and of itself. They think that having a budget is what you’re supposed to do to be good at managing your money.
But how many of us have tried to have a budget and failed? How many people hate the process because it is restrictive? Budgeting draws attention to the fact that you can’t have what you want. It is focused on limits and what you can’t have rather than on building the life you want.
What if you had the comfort of knowing that you had enough?
This is the comfort to obtained by managing your money in a way where you don’t need to set up budget categories and make sure that you’re not going over your limits.
This isn’t to say that you will be able to buy whatever you want whenever you want. Rather, it is a way of living where you are not thinking about money every single day and worrying about every single expense. It is a life without feeling guilty about picking up that extra thing you wanted at Target. It’s just buying a new microwave when the one you have starts to shed white specks from the top of it without worrying about how you’ll pay for it. It’s a life where you can relax more and make more intentional choices with the bigger picture in mind.
The vast majority of us will always have to make choices about what we buy. Very few people in the world can afford to buy whatever we want whenever we want.
But smart money management is about knowing what is important to you, spending money on necessities and those things that are important to you, and cutting everything else.
A 2010 study from Princeton showed that once basic necessities are covered, there is no correlation between wealth and happiness.
Rather, the happiest people are those who are clear on their values and goals and intentionally spend money in those areas.
They don’t buy things just for the sake of having things. They don’t buy a bigger house just because that’s what you’re supposed to do or that’s what all of your friends do. They know that they have enough to live the life they want, but they don’t spend extra money or try to keep up with their friends and neighbors.
So how do you get there?
How to manage your money without a budget
Know where your money goes
Yes, you still have to keep track of your spending, but it doesn’t need to be on a micro-level. You can make this as broad or specific as you want. Unless you’re really having trouble overspending, there’s no need to break your Target bill into food, personal care, home items, and fun things. How detailed you are depends on your preference and needs.
Build up a healthy balance in an easily accessible high yield savings account.
Many people refer to this as an emergency fund. I’ve also heard it called an “oh sh!t fund.” The point is that you need to have enough money sitting around to cover expenses if you lose your job or you have a bad month if you’re self-employed. If the furnace breaks or you have an unexpected medical bill, you won’t end up burdened with high-interest credit card debt.
Pay yourself first
The key to a stable financial future is to plan ahead and save for the future first. Make sure you are saving 10-20% of your salary for retirement. Identify your other goals and automatically send a portion of your income into a savings account. That could be a house, college savings plan, vacation fund, etc. If you have high-interest debt, that might replace part of your future savings at least for awhile.
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Then pay your bills. Obviously, you have to make sure there is enough to pay your bills when you determine your savings amounts.
Do whatever you’d like with what’s left over.
Doesn’t that sound amazing? This is truly the magical part of the non-budget method. You get to do whatever you feel like with the rest of the money while knowing that you’ve already paid for your living expenses and saved for the future. Here are some ideas of what you could do:
Build up the amount of accessible savings even more. If you only have enough to pay for six months of living expenses in case of job loss, maybe you want to increase that to nine months or a year.
Decide on an additional goal and start saving for it. Maybe that’s a nicer house, a specific vacation, a home renovation, etc.
Give yourself a “fun” fund.
Finally buy some new furniture now that your kids are old enough to not totally destroy it.
Take a spontaneous trip somewhere.
Let it sit until you find something you want.
If your savings account gets too big, open a brokerage account and invest the money in some index funds.
You might be saying, “that all sounds great, Annie, but what if I don’t have enough money to do that?” Fair point. This might be something you have to gradually work toward. If you haven’t been disciplined in your spending, lost your income source, have a lot of student loans or credit card debt, or were the victim of some crappy things happening, you might not be able to do this, at least not right away.
This is where a budget might be a good tool for you to use for a while. It may be necessary to be more frugal and give up some things now so that you can build up enough savings to get to this point. Even if you don’t create a full budget, pay attention to your expenses and identify things you can cut or reduce.
Managing your money in this way can enable you to live an enjoyable life without the daily stress of money. Once you build up your savings to the point where you have enough for emergencies and you automatically save for the future, you will find much of your money stress start to melt away.
If this sounds good to you and you’d like help getting there, schedule a free 15-minute consultation to learn more about my coaching services.
