Why We Don’t Budget
The personal finance blogosphere is bound to be abuzz with New Year’s posts centered on goals and budgeting this week. I’ll spare you another piece on goal-setting, but since starting this blog I’ve been meaning to share why we don’t follow a monthly budget. Anathema, I know! Don’t tell Dave Ramsey our dirty little secret, okay?
Despite this apparent negligence, we live on less than half of our one (five-figure) income. Not budgeting is clearly working for us, and while this approach may not be for everyone, we believe it illustrates much about our financial philosophy and practices. Most people’s definition of budgeting is doing their money a grave disservice. We hope to shed some light and help you get your money where you want it this year.
Don’t Eat All the Leftover Christmas Cookies (or Money)
Despite our irreverent financial customs, we do create an annual budget around this time of year to determine ahead of time where we want money to go. But this exercise is about bigger picture goals like investing, accelerated debt payoff, travel, Christmas, other gifts, and charitable giving. We don’t want to fall prey to the strange phenomenon where you never have anything left to invest or share if you wait to use what’s leftover.
Money is kind of like all the Christmas cookies and candy still lurking in my house after the holidays. If I waited till I had my fill of sugary delights, I’d eat every last confection. Instead I evacuate it from my home ASAP so I don’t develop diabetes or have little people whining at me all day about treats. Though these reasons are a bit more selfish, the same principle applies to investing, saving, debt payoff, or giving. Get it out of checking and into its destination without delay.
Once our annual aims are clear, we list our living expenses and estimate costs based on the previous year. While we track our spending in Mint.com and Neil’s custom utilities spreadsheet, we don’t tally every single dollar we spend. Instead we focus on those big-picture goals. Many are automatically withdrawn at the beginning of the month. As with cookies, the less will-power involved, the better. Let EFT substitute for will-power.
Let Goals, Not Receipts, Be Your Guide
This approach simply allows us to hone in on our money’s important destinations, instead of nit-picking minor fluctuations in the mundane areas. For example, while I’m mindful of our variables like groceries and household items, I know I’m on track for those when we’re meeting those big goals, rather than meticulously categorizing each and every output.
For example, I can’t tell you offhand precisely how much we spent on household items in 2015. What I can tell you is exactly to what extent we met our goals for debt payoff, investing, and giving. And that’s way more telling than how much we spent on toothpaste and toilet paper last year.
Our big-picture focus is doubly powerful because it not only tells us if our spending is on track, it motivates us to avoid over-spending. We’d be in big trouble if we didn’t pay attention to our living expenses, only to realize we were falling far behind on our goals. Being sold on our objectives clarifies the purchasing choices we’re confronted with throughout the year. This is a large part of the reason Why I’ve Banned Shopping Bans.
What is a Budget, Anyway?
In common parlance, people use budget to mean a plan about how to spend money. It’s considered a list of expenses. And too often when it’s written down, it’s accepted as an inexorable reality. Electricity costs $80. We need light. No questions asked. Used this way, a budget becomes a license to spend. No one wants to “go over budget,” so people feel compelled to write down every possible expense for every month, even though many expenses don’t necessarily occur on a monthly basis, such as clothing. Over-estimating is also tempting under this paradigm.
So many financial gurus exalt the discipline of monthly budget meetings. Some even depict it as a sultry date night topic. Faced with so much hype (SULTRY!?), we tried the exercise for 3 consecutive months. We even found ourselves accounting for extra areas like blow money and ministry expenses, “just in case.” The verdict? BORING, not sultry. And more relevantly, we found that our monthly budgeting led us to spend MORE money or made no difference. We thereby declared it a waste of time, much to my joy.
Instead of viewing the budget as a spending plan, we think of our annual budget as a plan for what we want to accomplish with our money. Where do we want that money—in the stock market, early debt pay-off, a car fund, other savings, or the pocket of a nonprofit? Then we get it there ASAP. And financial progress is as exciting as budget meetings are boring.
If normal budgeting is deciding how to spend money, we prefer to decide how to NOT spend money! Of course we’ve got nonnegotiable monthly expenses, but instead of accepting with carefully budgeted resignation that electricity has to cost $80 a month, or groceries have to cost $600 per month, we find ways to optimize, and thereby minimize, those expenses. Just think about how many people are proud to stick to their monthly food budget of $600 when we have no problem sticking to about half that amount for a family of four. I’m not trying to boast or get into a debate over how much to pay for groceries; I just want to illustrate the point that budgets can be used as a license to spend. As the Frugalwoods have so aptly expressed, “budgeting asks how much one can spend; we like to ask how little we can spend.”
This monthly license to spend is akin to pretending to be frugal rather than pretending to be poor. We’re not looking for permission to maintain our lifestyle; we’re looking to actively deflate in order to inflate our usefulness, instead.
At the same time, we recognize our laissez faire approach isn’t for everyone. It depends on many factors including your financial personality. We hope our definition of a budget helps you align your money with your goals this year. We also plan to provide some useful tools, such as an upcoming post to help you think through what budgeting strategy is best for you, and an epic spreadsheet share.
What do you think about this definition of budgeting? What is your approach to budgeting? Don’t worry, I won’t tell Dave Ramsey, either 🙂
42 Responses to “Why We Don’t Budget”
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My wife and I do not budget, but we do track our income and expenses each month. We’ve tweaked things based on what we’ve seen in our spending spreadsheet. I think some people do need those bounds/limits on spending, so budgeting is generally a good thing imo.
Budgets are a great tool in conjunction with a solid financial philosophy. Tracking works better for us, too.
I think you do whatever works for you and keeps you on track with your goals. For me that means a budget, for others, like you, it doesn’t. If you are living on half your income that’s awesome!
I completely agree that people need to take the approach that works for them! I also hope to help people understand why a certain approach might not be working as well for them as it does for others.
We do a budget every month, but it’s more of a review at the end of every month…definitely not a license to spend. It gets us excited for the same reasons you mentioned- getting one step closer to those investing and giving goals! I’m not a math person but Josh is, and we both like our non-budget system.
Your approach sounds similar to our tracking method. That’s great it’s keeping you on track and motivated, and I also love the complementary aspects spouses can bring to their finances.
Kalie, great post. It really explained the system you and Neil use and what about it works for you. What’s most interesting to me is why this works for you and why it doesn’t work for many other. I believe you and Neil are fortunate to be folks that have a healthy relationship with money and spending.
Unfortunately many others do not. For others, a budget is a tool for them to start getting on track and begin building that healthy relationship. I agree with your points about the dangers of a budget, but in my opinion those have to be viewed in perspective on the individual. (You mention similar thoughts in your comment replied above)
I’d love to read your thoughts on where a budget works or fits in and where it doesn’t.
Again, great post!
Thanks, Mike. I agree that you can’t throw the baby out with the bathwater. Even a skewed view of budgeting is way better than mindless overspending. I am excited to share my thoughts on helping people navigate the best approach for them, too.
I like the idea of deciding how NOT to spend money. 🙂 It makes a lot more sense to me.
Also, I have to admit that…I do not know who Dave Ramsey is. I feel a bit ridiculous that I haven’t googled him yet, because I’ve heard a whole bunch of people mention him in blog posts, etc., but the mention is usually to disagree with him in some way, so whoever he is, I’m guessing I don’t want to read his stuff. (Though I’m sure curiosity will get the better of me at some point!)
We have benefited a lot from reading/listening to Dave Ramsey’s teachings on money. He has helped lots of people get out of debt and build wealth while also being generous. But of course everyone needs to find what works for them, and he is very straightforward which inevitably evokes controversy. Check him out, though; he’s got some great material.
I take a similar approach to my spending and rather than setting a maximum, I target a minimum amount for spending each month. This mindset challenges me to find waste in my expenses and require less and less each month. It also prevents unnecessary spending resulting in a budget surplus and frees me of any guilt should unpredictable expenses take me slightly over budget. (Also, it frees me of the mundane chore of mapping out each expense.)
All that said, I think a budget can be still be useful for some, especially those who are just beginning to get their finances in order. If nothing else, a budget gives you some concept of where your money is going each month. It can also provide structure for those that need it (or tend towards loose spending).
As you mentioned, individuality is important and everyone should find what works for them. Like you, I just don’t see regular, monthly budgeting as a sustainable option for myself.
Yes, budgets can provide structure, especially for those looking to make major changes in their spending.
I’ve found that budgeting is important if you have no clue how much you’re spending and you’re falling deeper and deeper into debt. Debt is a number you really can’t escape…. if that credit card bill is getting bigger and bigger, you’re in trouble. You need a budget and need to get that on track.
Otherwise, if you pay yourself first, you’re golden.
Great point; growing credit card debt is a good sign you need a budget to get back on track.
Another great post, you guys. We’ve long felt that budgets are unnecessary if you spend mindfully. So I do think they’re useful for people who can’t seem to get their spending under control any other way. But if you are already mindful about it, then yeah, a budget could easily make you spend more, or make you feel guilty about spending on something that’s actually important to you. Like you guys, we set yearly targets, but the only things we closely track each month are groceries, and that’s only in an attempt to optimize that spending, not because it has to fit into some line item.
Sounds like you have a great approach that is working well for you. It’s good to know we’re not alone in breaking this PF “rule.”
This is an interesting take on budgeting. I hadn’t really thought if it that way before, but I can certainly see where you’re coming from.
We attempted budgeting for a few months last year. My husband wasn’t into it AT ALL, so I’m setting it aside for this year. I will continue to track our monthly expenses, to help keep us on track, though.
Tracking is like the other side of the coin. If you know where your money is going and are happy with that, you probably don’t need a budget.
Just like 99% of people spend more money when using a credit card, I’d say 99% of people spend more when they don’t have a budget. But budgeting is not the goal, it’s only the means to accomplishing a goal. If you can truly be just as effective without it, why do it? I’m fairly cynical of most people who say they are saving just as much as they would if they budgeted. Excluding, of course, my PF friends who are much more in tune with their finances 🙂
Yes, I agree that not tracking spending–whether with a budget or another tool–will lead most people to spend more. But so many people can’t understand why their budget “isn’t working.” And I think it’s that their definition of budgeting doesn’t work.
We do a bare bones budget every month, and it works great. It’s more of an outline for how we plan to spend our money than anything else. I think we’re a lot better off seeing our monthly spending in black and white, and our budget helps me track it all month long.
With that being said, budgeting isn’t for everyone. My parents are the most frugal people I know and they have never budgeted!
Yours sounds like an effective approach. Our annual budgets includes those expenses x 12, so we can and do reference it to make sure we are spending appropriately on the monthly basis. I’m also glad to hear your frugal parents don’t budget!
“We prefer to decide how to NOT spend money!” – I love this! We have a very similar philosophy towards our budgeting practices.
We don’t budget in the traditional sense. I tried to isolate categories for spending. But unexpected expenses — usually health-related in some way — drove me crazy. As in, regular freakouts. It was exhausting.
So I went another way with it, and I just allot a specific amount for spending each week. As it wanes, we have to get a little more circumspect about what we spend. (I know that’s still less than ideal, but we’re talking about health problems and ADD so…) I still try to be circumspect overall, but it’s a lot easier to impress upon Tim not to spend when I can point to a specific balance vs days left in the week.
I concrete, weekly limit sounds like an effective approach for your situation. Good idea!
If it works for you, then more power to you! 🙂 I’m a big fan of doing whatever works best for you even if that means budgeting or not budgeting. We have a budget, but it’s more like a “plan”. We don’t get too hung up if we go over budget in a few areas because it’s usually balanced out by lower spending in other areas.
Yes, I think it’s most important to have the right philosophy that works for you, and then finding the practices that make it happen. If we hit our big targets, it doesn’t matter as much what happens in the smaller areas, which reduces stress.
I think I’m too naturally disagreeable to do without a budget, and my husband loves budgeting (and I love spreadsheets).
However, I think I agree that our budget is a license to spend. I both like that and dislike that about budgets.
It certainly helps to know what works with your temperament and strengths. We do have an epic financial spreadsheet (Neil’s creation) to help us keep track of our goals.
I too didn’t budget and put plenty into savings every month. Once I got married I quickly found that my new wife didn’t do so well under my money management style. So now we budget… 🙁
Yeah, you have to do what works for both spouses.
I’m all for budgeting because it just makes good financial sense. But unfortunately, I’m not as disciplined as I could be, or should be when it comes to tracking my income and expenses. I am not married, so I can’t blame it on anyone by myself. Enjoyed the article!
No one is perfect at this money stuff–that’s how we find ourselves in this blogosphere.
I’m definitely in the camp of “save first and spend what’s left”.
My wife and I set savings goals, we know our monthly expenses, and we roughly know our day to day spending. Only the first two get tracked closely. The last one can fluctuate but once the money is gone then we stop spending for the month.
Sounds like the traditional budget is optional for you two.