We are 3-time budget failures. On 3 separate occasions, I sat down with our computer, popped open an excel document and set out on a fool’s quest to build a beautiful manifesto of our monthly spending rules. All three times I got the framework set up and didn’t follow through. All 3 times we failed. Budgets Suck.
So, if a self-proclaimed money nerd can’t get excited enough to maintain a budget, there must be some non-money nerds out there that are in the same boat.
The good news, if you find budgeting unsuccessful, there is another way to manage your money.
Budgets Suck, Build Wealth Without One
Before I lay out the reasons I despise formal budgets if you are currently using a budget and it works for you THAT IS GREAT! This is all about finding a solution that works and I know there are budgeting systems out there that change people’s lives.
If you have tried and failed at building or following a budget or don’t think you can stick to the one you are currently on – I am talking to you!
Why Budgets Suck
Budgets are Time-Consuming
I am not interested in categorizing every purchase we make every month. It’s the reason I bucket the bulk of our credit card bill into “everyday expenses” when I look at our spending.
Budgets are Restrictive
I don’t like plotting how much we think we should spend every month on certain things. Our lives are too unpredictable to accurately guess how much everything going to cost.
Putting it another way – we aren’t going to skip out on a great experience because I put some number in a cell on excel. Here are some examples:
- If Mrs. AE has a craving for salmon but we are close to our max grocery budget, we will be eating salmon
- When friends randomly roll through town and they want us to meet them for a Twins game, dinner and drinks – I wouldn’t check my computer to make a decision for me
I know people will say “why not just transfer money around in your budget as these things happen?”
My answer…Why write it down, and put effort into it if I am not going to follow it? If I can change the rules in the middle of the game, is a budget adding any value? Is it holding me accountable?
Ultimately they failed for us – Because Budgets Suck
Why keep trying something if it’s not working? After 3 failures we decided we needed another solution, something more flexible that still enables us to hit our goals and build wealth.
Budgets Suick – You can build wealth without budgeting
Over the last three years, we have been working a different system and it is definitely working. If you need to see the proof (it’s ok, you shouldn’t trust everything you read on the internet) you can look at our Net Worth progression over the last 5 quarters and see the progress.
Before we get too far into this post let’s review a few terms I will use moving forward
- After-Tax Income: Take home pay, for the purpose of this post we will use 2 paychecks every month
- Unavoidable Costs: Costs that are difficult or impossible to cut and can be estimated monthly
- Mortgage, heat, water, electric, insurance, cell phone, internet, car loan, gas, student loans
- Variable Costs: Costs that are not mandatory for survival and could be cut out if necessary, these vary heavily month to month and are hard to estimate.
- Savings Rate: % of after-tax income saved
Turning Terms into a Plan
After Tax Income – Unavoidable Costs* – Savings Amount = Variable Costs Bucket
How we make this work
- We set a yearly financial goal for our savings rate and set up automatic transfers
- 401K, Roth IRA, Brokerage, Emergency Fund
- Without thinking or any manual intervention, 39% of our After Tax Income is moved to savings and investment accounts
- Whatever is left in our checking account after Unavoidable Costs and our automatic savings is guilt-free spending money. We do whatever we want with and do not separate it out from entertainment, food, drinks, buying non-essential products etc.
- I periodically check our credit card balance throughout the month and if it starts getting out of hand, we take it easy for a week and then resume our normal spending
Our philosophy: Set a goal on how much we want to save, automate the savings, anything left over can be spent guilt free.
You can use either a dollar amount or a percentage as a savings goal and start working towards it. If you have debt, set a goal on how much extra you want to pay off this year and start increasing your payments by that amount.
We have found success with small, incremental changes over time, we didn’t start out with a 39% savings rate. It has taken us a few years to figure out what we actually care about and eliminate wasteful spending.
An example of a small, incremental change – Increase your 401K contribution 1% every quarter for a year.
Reviewing Spending is still important
Don’t confuse my hate of budgeting with controlling your spending. Even after using this solution for 3+ years, I still think there is value in periodically reviewing where our money went. If you are just starting out you should review your spending monthly to make sure you are spending on things you actually value. Systematically cut out the expenses that don’t bring you happiness.
Overspending will kill any budgeting solution you try to implement. You will only find success if you systematically cut out expenses that do not make you happy. A good rule of thumb, if you don’t remember the expense, chop it.
If you have tried and failed at budgeting or uttered the words BUDGETS SUCK on multiple occasions, give this a shot and see if it works for you.
- Guilt-free spending of any money left over after we hit our savings rate
- Automation makes it easy to pay yourself first
- Easy to maintain
- Set a savings goal, make it happen automatically, wing the rest
- Clear focus on the only number that matters, your savings rate
- Certain expenses can build over time unchecked (part of the reason we still do a spending review every few months)
- If you like to have a lot of control, it might be tough to let your spending go un-categorized
After doing this for a few years, we are in a pretty good groove and we haven’t struggled to pay off our credit card at the end of the month. Over time your “Only spend on the important stuff” habit will form and you will only need the occasional check in.
Budgets suck 🙂 Be rich without one
Are you a budgeter? Do you like budgeting? Do you agree with me that Budgets Suck? If you want to try a budget I see great reviews of You Need a Budget.