Why I Don’t Budget And What I Do Instead

It might be odd to hear that a Financial Advisor doesn’t budget.  Kind of like hearing that the butcher doesn’t eat meat. It makes you pause for a second.  Do they really believe what they say? Do they eat their own cooking?

And it’s true, I don’t budget.  At least not in the traditional sense of the term.   I used to have complex spreadsheets in Excel that tracked everything that I spent.  And I looked at it every month to make sure my spending in each category was in line.  I would only spend a certain amount on housing, food, entertainment, etc. Everything was tracked to the last penny.

But after awhile, I realized something:  I didn’t care how much I spent in specific categories on a monthly basis.  What I really cared about was how much I spent overall, and whether that left me with enough money to fulfill my financial goals.

The more I looked into this, I realized that I was onto something.  Most people are only able to juggle so many things in life. We’ve got our jobs, kids, families, friends, and if we have enough time maybe a hobby or two.  

So the last thing that most people want to do is spend their precious free time nailing down whether they’re spending 13% or 15% of their income on food.  

But if you aren’t going to take a fine-tooth comb through your spending every month, does that mean it’s okay to spend whatever you want and hope for the best?  Absolutely not!

Instead of Using a Traditional Budget, Here’s What You Should Do Instead

First, if you don’t know already, find out exactly how much your family makes per month, after taxes.

Second, find out how much you need to save in order to hit your financial goals.  Things like retirement, saving for college, saving up a down payment for a house, etc.  What do you need to save, per month, to hit each of those goals?

Third, set up your bank accounts so that every month, money is automatically sent to accounts that will fund your financial goals.  So if you need to save $1,000/month for retirement, have that amount go straight into your investment account every month, without you having to manually do a thing.

Fourth, take your total income per month, and subtract from that the total amount that you need to save/invest on your financial goals.  The amount of money that you have left over is your spending money.

So let’s say you and your spouse make $10,000 per month, and need to save $3,000 per month to hit your financial goals.  That means you can spend $7,000 per month.

And the best part is, you can spend that money however you want, regardless of what percent you spend in certain categories.  

In other words, after you’ve allocated your money for your goals, you shouldn’t spend time worrying about whether you’re spending 29% of your income on housing or 7% on utilities.  

The big caveat, of course, is that you can’t spend more than what you have leftover!  

But the good news is you can forget that extreme level of detail, feel confident that you’re on track to hit your goals, and enjoy your life and your money.

If you feel like you can do this on your own, awesome!  But if you think you need help putting this plan of action together, I’d be happy to see if we’re a good fit to work together.  You can email me at scott@forthrightfinances.com, call me at 424-258-4460, or contact me here.

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