I have a confession. My wife and I no longer budget. We used to sit down at the beginning of every month and plan out our spending. We just no longer see budgeting as a useful task for us personally.
There are plenty of people that should be using budgets. If budgeting works for you, don’t stop. However, if you have a good handle on your finances as well as your spending and you’re just budgeting because you think you’re supposed to, you might be able to stop.
Here’s why my wife and I don’t budget. If you find yourself in the same situation as us, you might be able to stop budgeting each month, too.
We Track Our Spending
Just because my wife and I don’t budget doesn’t mean we’re financial slackers. It is quite the opposite, actually. We track our spending religiously with Personal Capital. Every single penny gets tracked and categorized so we know exactly what we spend our money on. This is easier than it has been in the past thanks to the software available today. In fact, the only spending we have to enter manually is in the rare instance where we use cash to pay for something.
Tracking our spending is very important to us because it gives us a great tool. At any time, we can go back and reference our tracking should we have a question about our past spending. It’s often quicker than going through old credit card statements or trying to find a receipt.
Recently, the battery in my car died. I knew it had a 3 year warranty, but I had no clue when I bought it. All I had to do was search for a Sam’s Club transaction in my automotive service spending. The transaction popped up immediately and I found out I had only bought the battery two and a half years ago. I then found my receipt and got a free replacement battery, saving us $104.
Review Spending Regularly
Tracking your spending is pointless if you never review how much you’re spending. Similarly, budgeting is pointless if you never check to see if you adhered to your budget or not. Since we no longer budget, we don’t have a goal or budget number to check our spending against for each category every month. That said, we still review our spending on a regular basis.
Each and every month I sit down and take a look at how much we spent in each category. I often compare that spending to spending in the previous few months. In cases where there is irregular spending, we compare with the month during the prior year.
One thing I look for when we track our spending is patterns. If I notice we’re steadily spending more and more money dining out each month, I know we need to decide whether that extra spending is worth it to us or not. Similarly, if I see our clothing spending has been low for the last few months, I might expect a large clothing spending month in the near future.
I also look at our total spending each month to see if we’re spending more or less than our total goal spending for a month. While we don’t budget, we do have a set number in mind that we like to keep our expenses around. Some months are higher than the goal and others are lower than the goal, but they should average out over time.
Make Adjustments Accordingly
Just like tracking your spending is pointless without reviewing what you’ve tracked, reviewing your spending is pointless unless you’re going to take action from that information. Whenever we see our total monthly spending rise above our total monthly spending target, we take a step back to see where we went wrong. After we find the culprit, we make sure to pay special attention to that spending category in the coming months. Usually, this leads to a great reduction in spending in the given category.
The most common areas where we start seeing spending creep up over time is groceries and dining out. Fortunately for us, the increases in spending are nothing drastic compared to our overall budget. We do still need to keep an eye on our spending in these categories. After all, we have nothing to show for that spending at the end of the month.
Most often we limit our eating out to a certain number of times per month to solve our dining expense issue. As far as groceries, we usually crack down and shop by using a list. Impulse purchases can add up fast in a grocery store.
In the more unusual case where we notice we’re spending less and less every month, my wife and I decide if we want to increase how much we invest each month or if we’d rather put that extra money in savings for a rainy day.
We Pay Ourselves First for Retirement
Americans in general stink at saving. I’d venture that many of the people who are saving are only doing so because they have a budget. Without a budget, people usually end up spending all of the money they have available to them until they run out. Then, they hope the next paycheck is right around the corner.
My wife and I use the pay ourselves first method to avoid running into the same problem. Rather than save what we have left over at the end of the month, we start out by saving as soon as we get our paychecks.
If we have any goals we’re working toward, we’ll figure out how much we want to apply to that goal each paycheck. Then, we transfer the money to our savings account before we spend a penny. We do the same thing for our retirement and other investments. We log into our investment accounts and purchase the appropriate amount of investments to meet our goals before we start spending.
Paying ourselves first ensures that we’ll never allow our spending to get so out of control that we can no longer save or invest. If we run out of money, we’ll stop spending. However, the savings are already put away so we don’t ever have to worry about saving less than planned.
We Have No Consumer Debt
Another reason we can get by without budgeting every month is the fact that we have absolutely no consumer debt. The only debt payment we make each month is our mortgage payment. Life is so much easier without credit card payments, car loan payments, personal loan payments or any other type of loan payment.
If you don’t have any debt payments other than a mortgage, you probably have a bit more wiggle room in your monthly spending than someone who has to fit a bunch of payments in their budget. That’s especially true if they’re making extra payments to pay their debts down faster.
We Check Our Finances Before Making Large Purchases
We do a review of our spending at the end of every month. My wife and I also check in on our finances before making a large or unexpected purchase of $100 or more. If the purchase is a want and our finances aren’t in good shape, we don’t make the purchase. Instead, we’ll wait until we can save enough money to be able to easily afford the purchase. If we do have the money, we go ahead and make the purchase.
Sometimes, we’ll even allow ourselves to go over our monthly spending target by large amounts. We simply make sure our income can support the expenses and it is a one time non-recurring purchase.
When a purchase is a more pressing need, we’ll usually make the purchase anyway. We have a fully stocked emergency fund that is ready for any unexpected needs. If you decide to do this, you should have a strict definition of the word need. When your car breaks down, you simply need to get it running again so you can get to work. You don’t need to go out and buy a brand new car.
We Keep Each Other in Check
Another great way we keep our spending under control is our marriage. Both my wife and I are conscious of our financial goals and how we spend money affects those goals. If either one of us notices that we’re spending more than we should, we’ll call each other out. After all, we both want to meet the financial goals we’ve set for ourselves.
Even if you don’t have a significant other to keep you in check, many financial software programs will alert you if you’re not staying within spending or saving parameters you set up. While it isn’t as effective as getting called out by your spouse before you make a purchase, it’s better than nothing.
Budgets Have Their Place
Don’t get me wrong. Budgets do have their place. They just aren’t very useful for my wife and I at our current point in life. If we ever face a period where we need to buckle down and save a larger portion of our income, tackle a massive debt again or run into a period of time when our income drops significantly, we’ll be sure to break out the budget again. Until then, we’re going to stick with our non-budgeting ways and continue regulating our spending in other ways.