Make a budget, they said. It will be fun, they said! Building a budget is the first piece of advice in almost every financial article, and it's guidance I've doled out time and time again.
But, despite the universal suggestion to make and follow a budget, my husband and I don't actually live on one, and we don't plan to start any time soon. There's a simple reason why we do this, and a simple way to make it work. And if you implement our plan, you could join the ranks of us non-budgeters by spending your money without accounting for where every dollar goes.
How I stopped living on a budget
When I first started working and managing my money, I tried living on a budget. I established spending limits for different categories and kept track of where all my money went. Unfortunately, I found this method constraining and too difficult to keep up -- especially after getting married, when there became two of us under one budget.
So, after some trial and error, we figured out a system that works better for us. We automated all of our "essential" payments, so that when our paychecks come in, money is automatically withdrawn to:
- Pay the mortgage
- Pay the utility bills
- Pay health insurance premiums
- Contribute savings to our retirement accounts
- Transfer money into savings accounts for goals such as vacations and paying cash for our cars
We prioritized paying off debts when we first got married, so we no longer have non-mortgage debt. When we were still working on paying off debt, we also set up automated payments to our student loans -- for more than the minimum amount due.
Once all those automated payments have been taken out of our account, we know that any money left over is available for spending. We can spend it on whatever we want, as long as we stop spending before the money is gone.
Why this system works better than a budget
This approach of paying the important stuff first and spending what's left over works well for us, because we know that our money is going where it needs to every month. Unlike when we were budgeting and trying to make sure we allocated enough money to our goals, we don't have to worry about whether we'll overspend and end up with too little to save. We don't get a chance to spend anything until our essentials have been taken care of. Just be sure to pay the balance in full, every month, if you go this route.
And we also don't have to worry about keeping track of our spending and making sure we stay within our budgeted categories. We can spend without worry as long as there's money in our account, and know that we're not compromising any of our big objectives. This feels much less constraining than trying to limit our eating out or entertainment spending. If there's money in the bank account, we're free to do whatever we want with it.
Will this system work for you?
This approach to managing money works well if you have enough money to pay your bills and invest for the future while also having cash left over. If you struggle each month to cover basic necessities, you may need to live on a more traditional budget until you find ways to increase your income or decrease your routine spending.
You also need to be comfortable keeping an eye on your account balance to make sure you aren't getting too close to $0. We actually charge almost all our spending in order to earn credit card points, so we just check every few days to make sure the credit card balance isn't getting too near to the amount in our bank account that we have available to spend.
If we notice we're getting too near to our limit and have a lot of time left in the month, we just cut back on our spending by waiting to shop for nonessentials until next month, or skipping dinners out.
You can break free from budgeting
Our approach to managing money shows that there isn't a one-size-fits-all approach to financial responsibility. As long as you're hitting your savings targets and not racking up debt, there's no reason you have to live on a budget, even if all the personal finance gurus warn you otherwise.
The key for financial security is to find a system that works for you, that allows you to accomplish what you need, while still having enough cash left over to enjoy.