Experts say if you want to save money all we need are good budgets. But how many of us really stick to them and who enjoys or even has time for logging every penny? Save more and worry less with this no-budget approach.
We’ve all heard it over and over again. Want to save money and get out of debt faster? All you need is a good budget! POOF! All your money problems solved, right? Gah, if only it was that easy!
This is going to sound a little strange coming from someone who has worked in the financial industry for 18 years plus, but what I’m about to tell you just might change the way you think about budgets. For years, I’ve been a huge supporter of budgets. I even wrote an entire blog post with worksheets dedicated to budgeting!
But … you don’t need them. In fact, I don’t even like them myself. Just saying the word, “budget” gives this feeling of impending doom on the whole house party, doesn’t it?
Don’t believe me? Go ahead and announce to the family, “Family, we are going on a budget!” I’m willing to bet you won’t get carried out of the room on their shoulders like a champion. I’m betting they don’t exactly respond with, “Thank goodness! We are so tired of buying toys and doing fun stuff.”
I think of starting a budget the same way I think of starting a diet. The first thought is what I can’t have, like peanut M&M’s, those brightly colorful delicious chocolates that just melt away all the ill feelings of the day. But you know one thing good about a diet? At least you get to treat yourself for good behavior every once and awhile. Budgets aren’t always designed that way.
I think of starting a budget the same way I think of starting a diet.
I’ve tried plenty of budgets: pen and paper budgets, budget worksheets, Excel Spreadsheets, Mint.com, and even tried that cash envelope thing. And you know what I’ve come to realize? Manually tracking my money on a daily basis is not only hard, it’s a real pain in the you know what. At some point I can’t keep up and three months later, I’m starting the budget again. (Kinda like that diet I started right after the holidays!)
A budget tells us what we can’t afford, but it doesn’t keep us from buying it” – William Feathers
If there’s one thing in this world that is more precious than our hard earned money, it’s our TIME! And I’ll tell ya.. it doesn’t take me but a second to know that I don’t have the money to be spending on a new pair of shoes every season or a shiny new fridge with the TV on it.
I can tell you before the paycheck even hits the bank account that our idea of “eating out” this week is probably going to be homemade spaghetti served alfresco on the back patio. So let’s get real about it.
4 Ways We Manage Our Money
In my years of working with people’s money in the financial industry, I’ve seen some interesting ways people manage (or struggle to manage) money. I’ve found there to be 5 different types of money managers out there.
- Those that make budgets and stick to them. We’re talking down to the last penny and they know what their account balance is at any given time… almost to the exact dollar. They use Quicken, Mint.com, or some other financial management software, and quite possibly have 6 months savings set aside for emergencies. Just for the record, this is not me.
- Then there the cash method. They use cash to pay for everything and when it’s gone, it’s gone. Hocus Pocus, I’m brokus. They know whatever they have in their pocket has to last and somehow they make it work. (Not me either.. I can’t make this work.)
- A third type I see are the ones that are trying to get to Type 1. They budget, they’ve got it all together and then something unexpected happens like every single electrical breaker in a 40 year old electrical box goes bad all at once in your home. CHA-CHING! Time to call an electrician and that stuff isn’t cheap. Stuff just got real and there went the budget. For the record, THIS IS me!
- Then there’s what I call an instant gratification approach. They get money, they spend it. It’s that simple. They pay what has to be paid when it has to be paid, and spend the rest. Sometimes they might not realize it’s gone until that ugly little fee hits their account and then the instant gratification becomes instant stressification. Next payday comes and the cycle continues. (It’s all gonna be okay… hang in there!)
Now, I’m not saying that one way is any better than the other. Some people are natural born savers, others not so much. It is what it is, and more than half of us live paycheck to paycheck in some way or another. But I do believe there is an easier way, and it doesn’t require logging every penny you have with a strict budget. I believe it IS possible to save money even if you were born to spend!
A Simpler Spending Plan
People hate to think about where they have to cut back. Focusing on the fact that money is tight doesn’t do anything but create financial stress, am I right? So we need a simpler spending plan. Here’s how I do it.
Put it on auto-pilot.
We all have certain expenses that are fixed every month: house payment or rent, utilities and insurance, loan payments (student loans, car, etc.), minimum credit card payments, desired savings, or additional debt payments.
That last one is really important. If you want to save $100 a month or put that much more toward paying down a debt faster, then it needs to be considered a fixed expense. But there’s one fixed expense that is even MORE important that that. YOURSELF.
So let’s say I want to save $100 every month. I set that aside first with every paycheck at the same time I pay the bills. In fact, I have this set up on an automatic transfer so I never really see the money. You don’t spend what you don’t see. Some call this “paying yourself first.” Call it what you want, but put it aside and make it hard to get to. This is one of the most effective things you can do.
If you’re afraid that the money in savings is too easy to access, then set up a savings account at another financial institution on the other side of town and have the money automatically go there. Skip the ATM card for this account. This makes it harder to spend freely.
Okay, so we’re knocking out our fixed expenses first. Set these up as automatic payments. For instance – let’s say you get paid twice a month. Figure out what bills will be due before your next check. Set those to come out of your account and pay automatically as soon as you get paid. Don’t forget to set up that auto transfer to your savings account. Doing this as soon as your money comes in will keep it all paid on time and easy peasy. What we have left is spending money!! Whoohoo!
To see what’s left for spending, do this:
Determine the following:
- Your net (take-home) pay, per month.
- Your total fixed monthly expenses.
- Subtract your fixed expenses from your take-home pay.
This is what’s left to spend. You can spend this on whatever: food, gas, margaritas, shiny new shoes, or even monkeys in a barrel at the dollar store.
Of course, if something unexpected happens, you may need to spend money on that and have less for the fun stuff. That bites, but it’s also why we have that money going to savings automatically.
Then there’s this small issue of not having ANY money left for spending. I hear ya.. okay take a deep breath and read on.
If money is really tight, there’s a good chance there won’t be much of the green stuff left to spend after you’ve laid out your necessary monthly expenses and what you hope to save. In the short-term, you could lower (not eliminate) your savings goals while at the same time spending less.
Now, don’t jump on the Pinterest bandwagon looking for ways to feed a family of 5 with $100. Trimming your grocery bill by $25 might help a little, but it can also leave you feeling hungry and a bit down in the dumps. So go ahead and get the peanut M&Ms and look for bigger ways you can save like:
- Refinancing your mortgage
- Earning more money by selling something on ebay or other online app, or even through a yard sale.
- Calling your cable or cell phone provider to find ways to reduce your monthly bill even if temporarily
- Buying a lottery ticket and hoping for the best. 🙂 Okay, this one may not be a sure thing.
The point is, trimming little things gets you a little bit of money. Making big changes gets you a lot of money.
I don’t believe that my occasional cinnamon dolce latte is going to set me back thousands of dollars. Good grief, we should still be able to live a little, right? Besides my family and coworkers can certainly appreciate my early morning occasional caffeine binge. 😉
Trimming your grocery bill by $25 might help a little, but it can also leave you feeling hungry and a bit down in the dumps.
Not a lost cause!
Maybe you’re using all your money to pay off debt as fast as you can. (Ever feel like a hamster on a spinny wheel? Me too!) So here’s my advice on that. If you are paying a ridiculous high interest rate on your credit cards or even your other loans, here’s 2 things for you.
- Try to refinance those debts and get a lower rate somewhere. I recommend a credit union because their rates are lower and their whole philosophy is built around helping people save money. Not to mention that I work for one. 😉 – But don’t go around having every financial institution pull your credit. That’s a whole other story.
- Pay as much as you can to those debts to get them paid down quicker, BUT try to pay yourself at least $10 a month to that savings account we talked about. Get in the habit of saving first now, so you will be ready to really roll with it when that debt is gone.
Sum it all up…
There’s a lot of stuff here to take in, and it may challenge the way you think about your finances. I hope it does! Here’s the bottom line, y’all…
Budgets are stressful and rarely last beyond a few months. They focus on what we can’t spend and don’t have much flexibility in the things we enjoy in life!
Give yourself a spending allowance – after you’ve taken care of those big fixed expenses first. Don’t worry with logging every dollar you earn, and remember to pay yourself first in a savings account.
Do keep an eye on your spending allowance to make sure you don’t overdraw. Use one credit card for spending and keep up with that balance, or use one single debit card and track this one thing, rather than dozens of categories in unkept budgets.
Whether you are a die-hard budget keeper or a natural born spender, it’s possible to save money without cutting out the fun stuff.
So, how do you manage your money? Can you identify with one of the 4 types I listed or do you fall somewhere in between? Do you use budgets?