I believe that budgets are a wonderful tool for really getting a good, close-up view of your financial picture. With a budget, it’s easy to tell if you’re overspending in some areas and underspending in others. Budgets help you achieve your financial goals such as debt elimination, saving for retirement, and building wealth. The problem many people face, however, is that they don’t like the traditional budget process. I’m going to give you a solution to those budgeting woes, but first, here are the top four reasons why people can’t stand budgeting:
1) Too much work – Budgeting takes planning. Some people don’t like to plan ahead and anticipate all the possible things they might have to pay for in a given month. There’s food, water, electric, gas, rent, car payments, debt payments, memberships, magazine subscriptions, and a whole lot more. Unfortunately, while most people can remember the obvious categories, they forget about the car insurance that comes around every 6 months, the Christmas gifts, the car repairs, the date nights, the birthdays, the school field trips, and the other types of incidentals that are not monthly. Once someone blows the budget, they tend to throw in the towel.
2) Too restrictive – Being on a budget feels a lot like being on a diet to lose weight. It can feel like you’re depriving yourself if you limit your spending. It’s easy to lose sight of the fact that when you reduce spending in one area, you can increase spending in another. Being on a budget frees you to accomplish your goals, but it also can feel stifling when you want to go out and eat and you realize you’ve already maxed out your “dining out budget” for the month.
3) Too confrontational – Couples who start budgeting together will find themselves in disagreement at some points. People who wish to avoid confrontations will not want to undergo the process of negotiating with their spouse how the budget should be set up. Money fights are a leading cause of divorce, so avoiding arguments is yet another reason why people don’t budget. However, that doesn’t mean that sticking your head in the sand when it comes to finances is the answer.
4) Too much data – If you have a lot of accounts and many bills, there can be a lot of paperwork to go through to do your budget. This can take a lot of hours, especially if it is your first time doing it. The traditional budget is done at the micro level, which means every penny is accounted for. Some folks just don’t have that kind of time.
A possible solution to the above problems is what I like to call the “anti-budget.“ With the anti-budget, you don’t plan ahead for the next month, but rather you look back at the month that just occurred and evaluate whether or not your accomplished your goals and if you need to make adjustments this month. Yes, you still have to look over your accounts for last month, but it’s easier to add up what you already spent rather than guess at how much you will spend in the future.
Here are the steps involved in the anti-budget:
1) Choose 3-5 categories, including a goal category like “savings.”
2) After the month has ended, calculate the percentage of your income that was spent on each of those categories and if you met your goals for the month. Decide whether any of the category percentages strike you as being too high or too low. Do you need to make adjustments?
3) Repeat the process next month. When you achieve your goals, continue setting more challenging goals.
As an example, a family might decide that they want to save 10% per month as a New Year’s resolution. Then, after January has ended, the family looks over the past month’s spending and determines that they spent 70% on living expenses, 15% eating out at restaurants, 10% on entertainment, and 5% on savings. Since they broke their budget by 5%, the family realizes it needs to cut back on some or all of the categories. Going forward, they don’t set specific money limits like they would in a traditional budget, but they instead make a mental note that they need to scale back spending in, say, eating out and entertainment. Next month, they can go through all their spending again, see how the percentages fall, and make the necessary adjustments.
For another family, maybe they want to stick with just three categories and set up a 10-10-80 budget, which represents 10% tithing, 10% savings, and 80% everything else.
The key to the anti-budget is that you determine the percentages you want to spend on each of the high-level categories you set, but you don’t try to manage the purchasing decisions within each of those categories. In this sense, the anti-budget offers more of a macro perspective since it groups all the micro categories discussed earlier into a single macro category. The anti-budget simplifies the process by making it less complex and restrictive. With this method, you can avoid feeling depraved and burdened as you might with a traditional budget.
The anti-budget should not be a replacement for the traditional budget. If you’re struggling to make ends meet, then you should get into the nitty-gritty and start out with the traditional budget, since the anti-budget will allow you too much freedom. You need that micro level knowledge in order to make the best possible decisions with your money. Once cash flow isn’t a problem anymore, you can consider the anti-budget.
In my household, we use both methods. I like to have a strong grasp of the micro perspective so that I know which of my macro categories can be easily reduced, but I also like the simplicity of looking at things from the anti-budget point of view.
Do you use the traditional budget, the anti-budget, or no budget at all? What do you think is the best option?