For many people, one of the first steps towards financial security is creating a budget. The budget includes how much income they bring in and then lists all their expenses and payments. A successful budget will allow enough leftover to pay down debt or save, allowing people to get ahead.
But creating and maintaining a detailed budget takes time and energy. For most people, it’s well worth the effort. But does everybody need to do this exercise? Is the budget a useful, a necessary tool for everyone?
The Case for Not Budgeting
Let’s say you get paid twice a month, directly into your bank account. You have automatic withdrawals set up that cover your housing costs, utilities and other required payments. These withdrawals come out on the same day your paycheque gets deposited. Your debt payments come out automatically and your contribution to your savings plan is also automated. Whatever is left over in your account after these automated payments are made is yours to spend. You live on that until your next paycheque. Do you really need a budget? Maybe not.
It doesn’t matter if you choose to spend on groceries or restaurants, as long as you get fed. It doesn’t matter if you spend some of the cash on clothes, designer shoes or concert tickets, as long as you are taking care of your needs. You don’t need a schedule that breaks out all these costs into different categories or to track how much you’ve spent in each category.
Keep in mind, this only works if your income exceeds your spending. Put another way, you live well within your means. You don’t use your credit card to make up any shortfalls, you have to live on the money in your account. No more.
What about big payments that come up once or twice a year such as property taxes or tuition? You don’t want to have to spend all your available money to make one of these payments.
One possible approach is to take advantage of opportunities to pay these costs monthly. The city I live in allows property taxes to be split into monthly payments which they will automatically withdraw from my bank account. If no such opportunity exists, you could set this up yourself. Split the total cost for the year into 12 monthly amounts and set up an automatic monthly savings account transfer for this amount. If your bank offers free (no fee) online savings accounts, set up an account for each payment. You could have one account for property taxes, one for tuition, and any other infrequent, big payments. When the payment comes due, the amount is already sitting in the savings account.
Now when I say this doesn’t require a budget, I don’t mean it doesn’t require planning and monitoring. You should review your savings and debt repayment progress regularly to make sure you’re on track to meet your goals.
This method of financial management is not for everyone. I personally track every dollar I spend and compare it to my budget. It’s just the way I like to operate. I like to know where all my money has gone because I feel it gives me more control. It allows me to plan for the future. If you’re like me and you’re looking for a good, low tech budgeting tool, check out the printable My Budget Workbook in the Resources section of my website. It’s totally free so please go ahead and print copies for all your friends and family members too!
You don’t have to keep a budget if you live within your means and still manage to pay down your debt and save. Target 10% – 15% of your pre-tax income for savings. Pay this first, before you start going out to restaurants or spending on non-essentials. Even better, automate the transfer to go to a savings account on the days you get paid. If you don’t save or pay down your debts, you’re simply living paycheque to paycheque and you don’t get ahead.
If you’re living within your means, your debts are getting lower every month and your savings account is getting fatter, you might not need a budget.