An Alternative to Budgeting
Have you struggled repeatedly to create and stick to a budget? Then a simple budgeting alternative may be just the thing to help you get control of and manage your money. Read on to learn this simple alternative to budgeting to help you simplify your life and still reach your financial goals!
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A Simple Alternative to Budgeting That Really Works!
Creating and following a budget is one of the best ways that you can successfully manage your money to reach your financial goals and build long-term wealth. A budget or spending plan is basically a set of short-term (one-month) goals for your money. It’s where you tell your money what you intend for it to do for you.
By developing and following a well-thought-out, carefully planned budget, you ensure that you do with your money what you expect to so that you’re able to save money, pay off debt, invest, and give like you would like to. You can learn more about how to create a budget here. And for a great, simple-to-use online budgeting app, I recommend You Need a Budget. It’s my favorite straight-up budgeting tool, and you can even get the first month for free.
However, for some people or in some circumstances, budgeting doesn’t always work as well as we would like. For the first few months after we had our twins, for example, I’ll admit that we didn’t keep up with our budget very well. And sometimes, like last year when we were preparing to sell our first home, that still happens, where we’ll go for a month or more without tracking our spending and updating and following our budget as closely as we should.
But fortunately, we have our financial systems in place so that if we don’t budget every month like we would like to, nothing dire happens because we’re automatically saving, investing, and paying our bills in order to reach our financial goals.
And if budgeting hasn’t worked for you, you can do the same thing in order to still succeed with your money. Read on to learn another option you can do so that you can still be successful with your money even when budgeting hasn’t worked for you.
1. Use a simple alternative for saving and investing when budgeting fails.
If budgeting has not worked well for you, then one of the most important things you can do still succeed with your finances is to pay your bills and save and invest automatically (we will discuss how below).
One of the first personal finance books that I read years ago was The Automatic Millionaire, by David Bach. In it he talked about the importance of automating your finances so that you are saving and investing every month in order to reach your financial goals. I’ve read probably 50 finance books (probably more than that, actually) since then, but it is still probably one of my top 10 favorite personal finance books.
The beauty of automating your finances is that it keeps things simple. To learn more about automating your finances, read this article.
2. Set up systems that will manage your finances without budgeting.
If you’ve tried budgeting in the past and it just hasn’t worked well for you, there is an easier way that is a workable alternative. The alternative doesn’t have all of the same benefits that setting up a monthly budget has, and I still encourage you to create a budget and follow it as soon as you can, but it’s quick and simple and accomplishes the most important things that a budget does—it makes sure that you save, spend, and invest money where you need to each month.
3. Figure out how much money to allot to various categories.
Even though you won’t need to do a monthly budget with this system, you will still need to figure out, at least once, how much money you want to spend for each category each month so that you don’t overspend your income (and risk going into credit card or other debt) or spend more in some categories than you intended and leave other categories short. So, for example, you might allot $500 a month to food, $50 a month to eating out, $60 a month for fuel, $100 a month for utilities, and so on.
Figure out all of these amounts, including how much money to designate for saving and for investing, so that you have no money left over each month that hasn’t been allocated to something. That way, you won’t have any money left over that just sort of gets frittered away. Give every dollar a job. You could call this a simplified spending plan.
4. Save automatically.
Once you have determined how much money you can spend in each category every month, start setting up your automated financial system. (That might sound pretty sophisticated, but it’s actually pretty simple and easy to implement—don’t worry. :))
Since I believe in following a system of paying yourself first, I’m listing this step of saving before paying your bills. And the best way to save for an emergency fund and then save for large purchases is to save automatically by transferring the money from your checking account into various savings accounts before you ever have the chance to spend the money.
If your bank doesn’t offer an easy way to open several savings accounts, then I recommend signing up for an online bank like Capital One 360 (formerly ING Direct, which was their name 14 years ago when we joined them, before they were purchased by Cap One). Open a checking account and then add various savings accounts for things such as future car purchase, car maintenance, home down payment or home maintenance, vacations, Christmas and gift giving, appliances and furnishings replacement, and so on.
By setting up various savings accounts (which literally takes just a couple of minutes each to do), you never have to worry that you’ll inadvertently spend money you intended to save up for one thing on something else.
For me, that’s a big deal, because before we had multiple savings accounts set up I do remember at least once spending money on something that I had forgotten was earmarked for something else—and that something else was really important! And I love being able to see the amounts in each of our savings accounts that show us how close we’re getting to reaching our financial goals.
Don’t forget to set up savings accounts for bills that are not on a monthly schedule, such as auto insurance (ours is due every six month), life insurance (ours is cheapest if we pay once a year), and property and homeowners insurance. (Since we paid off our mortgage—you can do it too in time!—a couple of years ago, we pay these ourselves once a year rather than having them paid by the mortgage company from an escrow account.)
5. Use bill pay to automatically pay your recurring bills.
In addition to taking care of saving, you can automate your finances by taking advantage of bill pay. If you’re not using this banking feature, you’re missing out! All banks that I know of offer the service for free, so instead of having to buy (and then keep track of) checks and envelopes and stamps, you can use your bank’s bill pay service, and you can set up payments to recur automatically each month on the day you choose—and you don’t have to pay for any of it. Our bill pay service through Capital One 360 works great.
With a bill pay service, you don’t have to remember to pay your bills every month, and your bills will never be paid late. Double win!
6. Use the envelope system or similar method to avoid potential budget busters that you can’t easily automate.
For budget categories and expenses that you can’t automate (where you can’t use bill pay) and especially that you are likely to overspend on if you’re not careful (such as groceries, eating out, entertainment, clothes, and personal spending or fun money), I recommend using the envelope system or a similar method to make sure your spending stays in line with the amount you allotted for it. So if you have allocated $500 a month for groceries and you get paid twice a month, then put $250 each time you get paid into your groceries envelope.
If you want to try electronic options to accomplish the same thing as the envelope system, you could set up a separate checking account just for your groceries, for example. Then you can review your checking account balance each time before you go grocery shopping to know how much you can spend.
So if you have budgeted $500 for groceries and shop each week, you would have $125 you could spend each trip. And then you can put the nonessential items such as snacks and junk food and soda last on the checkout conveyor belt so that you can send items back if needed so you don’t overspend.
And as you start to pay attention to prices for the different foods you buy, you’ll get a good feel for how much you can buy, and it will become easier to stay within your allocated food spending.
Do you want help managing your food budget? Get the free weekly meal plan worksheets and shopping list as well as the grocery price comparison cheat sheet so that you will easily know if a particular food item or brand is a good price.
7. Invest automatically.
Most people are able (perhaps required is the better word) to invest automatically in their company-sponsored retirement accounts, such as the 401(k). And this is a great thing, I think, because again, the money is taken out of your paycheck and invested before you have the opportunity (inadvertently or otherwise) to spend it on something else.
If you have a Roth or traditional IRA in addition to your company retirement plan (and I recommend strongly that you do set one up), then definitely set it up so that you are automatically investing in those accounts, as well. You should be saving 10 to 15 percent of your income (if you don’t feel like you can do 15 percent now, start with 10 percent or whatever you can and work your way up from there) in good growth stock mutual funds. If you do this throughout your career, you will be able to retire with dignity and comfort.
And as your income increases and you pay off your mortgage and begin to build additional wealth, you can begin investing in nonretirement accounts as well.
If you haven’t signed up for a Roth IRA yet, do it today!
Are you ready to start investing (more) in your future? Sign up below to receive my cheat sheet that will walk you through how to sign up for a Schwab Roth IRA account.
If you’ve tried budgeting before and it really hasn’t worked for you, then setting up a spending plan and then automating your saving, bill paying, and investing can be a good alternative.
Doing a specific, written budget each month is still the best way to manage your money and make sure you reach your financial goals, but as long as you are very intentional with your money, that is what is most important.
This simple budgeting alternative will help ensure you still spend, save, and invest in ways that allow you to reach your money goals and dreams.
Invitation to Share
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