Count your pennies, and your dollars will count themselves.
I am paid to budget for my company, but when it comes to my own money, I've always found budgets restrictive and unhelpful. Instead, I am all about the Anti-Budget. It's easy to follow, and the focus is on the big picture of working toward your goals and spending within your means.
Money is fungible. Money is a tool meant to make your life better. A budget gives you a set amount of money to spend by category, which is counterproductive to living your best life.
I've never been a fan of traditional budgeting for my personal finances. Creating spending categories and buckets just doesn't fly with me. Besides, what if I allocate $350 to groceries and only spend $300. Can I go get a $50 pedicure even though I already blew my personal care budget with a $70 haircut this month? Or do I now just lose it, or carry it over? Really, why waste time thinking about it? As long as I have money in my spending account, no worries.
Steps to Anti-Budgeting
Step 1: Calculate Your Monthly IncomeIf you have a regular salary coming in, this step is easy. If you're a freelancer or have other income, be realistic about how much can be expected monthly. Either calculate it removing the taxes up front, or make sure to include taxes in in your monthly bills.
Pro tip: If you are thinking about changing jobs or careers where your income will go down, try "living off your new income" and saving the difference as additional padding for when you make the switch.
Step 2: Subtract Your Savings
- What are your savings goals? Investing, starting a business, paying off debt, or money in the bank?
- How much do you need to set aside each month to reach them? That's what you should be saving.
If the number you want to save feels like too much to start, start lower and then boost the number monthly by a percent until you get there, or look for ways to increase your income or decrease your expenses.
If your income is variable, you'll want to make sure you're building an extra cushion up for the leaner months.
Step 3: Calculate Your Monthly Bills
Take a look at your spending from the prior month and figure out what recurring bills you have. Mortgage or rent, loans, education/tuition, insurance, home services, utilities, subscriptions, medical, memberships, and everything that comes every month should be included in this. I review my list monthly, and I make sure to update whenever anything changes. Certain bills are quarterly or annually. Make sure you are setting money aside for these, too.
I have a dedicated bank account for all of these expenses and also include extra to cover our annual insurance payments, annual membership fees, semi-annual oil changes and car maintenance, our emergency fund, and the like.
Now is a great time to do an inventory and make sure each of the items is worth paying for. If not, it might be time to make some changes and cut things out.
Step 4: Spend the Rest Reasonably Within Your Means
I have the balance go automatically to separate checking account. This needs to cover all the variable monthly expenses like gas, groceries, household items, restaurants, entertainment, clothing, gifts, and lattes. As tempting as it is, don't just buy a bunch of fun stuff that doesn't actually align with your long-term priorities. As you go month to month, consider increasing your savings rate.
I calculate a monthly average for each of my variable items because I want to have an idea of what I need to cover my usual habits. I also check in on my bank account balance twice a month (sometimes more) and pay off my credit card in full each payday to help keep my spending in line. This reminds me of the exact dollar amount left and stops me from overspending. I'm reckless within the boundaries.
Usually the balance in this account at the end of the month is somewhere between $50-100, but it isn't uncommon for me to end up with $10 left and go buy a latte. It's guilt free, because we are saving and focused on our long-term goals first.
Household Financial Management
- Communicate, communicate, communicate. Everyone in the household needs to be on the same page in order to achieve financial goals.
- Mind your gap - the difference between your saving and your spending. Always aim to spend less than you earn and make the gap as large as possible.
- Figure out an organizational method that works for you. We have a simple Google Shared doc where we keep tabs on our monthly bills and our average spending on a couple key recurring categories.
- If you own a business or have a side hustle, make sure you are saving all your receipts and keeping tabs on the dollar amounts. I personally take pictures of receipts and email them to myself. I also note the spend for the year on a spreadsheet that I provide to our CPA.