Advice Against Budgeting in the New Year
Traditional budgeting won’t make you happier, however, planning your finances this way might.
Now that the month of December/spending is over we enter the month of January/frugality. Credit card statements lead to heart conditions during this month. Suddenly the spring trip you’ve been looking forward to seems too rich for your pockets.
This article is not a way to setup metrics to analyze investment return, rates of saving, or any other financial goal. Actually, this isn’t financial advice — this is life balance advice aimed at helping you feel a little more secure, responsible, and frankly less stressed about finances.
This is advice for people living pay cheque to pay cheque, taking extra shifts to pay off the credit card, and looking for a way to make sense of it all.
Take this concept and make it your own.
Before you move forward let me quickly pitch to you why you shouldn’t attempt to use a traditional budget coming from first hand experience.
Despite somehow surviving student life, self-employed life, and points in life where I was unable to work due to health reasons, I’ve somehow managed to pull through. If you’re going to end up throwing out your little tracker that focuses on cutting back on expensive groceries, clothing, or whatever seemingly frivolous items you might be spending your hard earned cash on once life presents you moments you just have to deal with, what’s the point of starting your budget sheet at all?
However, I have to admit…
… I still, at times, bring myself to near panic attacks when I think about my finances.
My car’s getting old. Might need to move in the near future. Maybe I’ll have a kid. How will I pay for a wedding? What about fun? When do I get to have that? How do I pay for all of this? Or better yet, how do I put this into perspective so I don’t drive myself mad?
Here’s my recommended alternative, and how I’ve battled through this…
Instead of budgeting, track your spending under these categories: Moments, Investments, Maintenance
Life’s investments , not your traditional take on the term: spending on something that has a chance to benefit you in the long run (a house, RRSP, stocks, art, education, and countless other items)
Life’s Moments: travel, time out with friends and family, concerts and/or events
Life’s Maintenance: rent, food, clothing — pretty much things you have to spend money on but are at times able to spend a little more or less… like at an outlet mall
Looking at your spending this way helps put your life in perspective in regards to how you prioritize life.
You have to look at saving money like spending. The money’s eventually going somewhere, and for the time being you’re actually taking away from either your life’s moments. Or you’re deciding you don’t need expensive jeans and that that your coffee maker makes as satisfying coffee as Starbucks.
By reflecting on your finances this way, instead a more traditional way of budgeting, you start to get a better sense of what type of person you are. Also, there’s a lot of room for these categories to overlap.
For instance, going shopping with your friends, having lunch, buying an awesome pair of jeans that you wear out to numerous concerts and events, could be considered maintenance (you ate, and bought clothes) moments (time out with friends) and an investment (well… maybe). It’s an interesting exercise to reflect back and classify how you’d consider this spending — not so you can justify the spending, or feel guilty or ashamed about it — but as a part of trying to figure out your priorities in life and if you’re spending is making you happy. After all, if you’ve read the article this far, there’s likely a reason you’re considering techniques to budgeting, and one of those reasons might be that you don’t feel like you’re spending wisely or that you have a financial goal you’re trying to meet and unsure how you can go about doing it with your current lifestyle.
Here are some guidelines for this:
- You should set a ratio for the categories. For example, if you make $3000/month, $1000 could be budgeted to all three categories.
- Keep track of things you go in debt for. Paying off a loan should deduct from a category based of the proportion used for said category.
- Education is an investment, not maintenance.
- You might not see financial returns on your investments, and that’s okay.
- Having said that (about investments) realize that we’re really saving for or investing in being able to pay for more maintenance and moments down the road.
- Make a goal. I try to drop cash into an account each month that’s dedicated to retirement, travel, events — things might happen both in the near future and further down the line.
- Savings and investment account balances aren’t listed on this sheet. They don’t need to be — you can log into your account to check this number and see if it’s going up or down. If you feel like you’d like more put into savings, try to shift money to investments each month. Keep things simple.
- And, in case you’re wondering, car payments aren’t included in the above tracker, but gas is… Student loans were used to pay for a car, so technically loans are maintenance based, but the car is an investment to get me to work.
Instead of putting together a thorough how-to on this, feel free to comment or drop me a line and I can provide advice.