I’m constantly asked to describe how I budget my money. When I talk about my budget, though, I refer to it as my “no budget” budget plan, or just a spending plan. This is because I don’t budget my money in what we often think of as the traditional way. I don’t have a list of categories, and I don’t start out my month by giving each dollar a job.
So how do I manage my money if I don’t practice traditional budgeting? Here is a quick peek at how I create a “no budget” spending plan.
Budget Plans Can Be Customized
Part of my aversion to the traditional notion of budgeting has to do with the fact that I have a variable income, and I’m never quite sure when I’ll receive money, and how much it will be when I do get it.
I also feel that traditional budgets — with the categorizing ahead of time — are limiting. What if I want to go out to eat again this month? Well, the money budgeted for that category is gone, so I can’t — unless I move the money from some other category.
I prefer to have a spending plan based on my family’s personal needs and that’s customized to fit us. We pay for our priorities first, and have a system that allows us to have a hands-off approach to managing our money. Here’s what I mean:
Prioritize the Important Stuff
For the most part, my finances are automated. The most important items on my list are taken care of on a monthly basis and automatically deducted from my account.
Long ago, my husband and I figured out our priorities, and our automatic withdrawals reflect those priorities. Items that are automatically taken out of our account each month (and automatically accounted for in our personal finance software) include:
- Charitable donations
- Retirement account contributions
- Rent payment
- Insurance premium payments
- Student loan payments
- Car loan payment
- Emergency savings (small amount to high-yield account, greater amount to taxable investment account)
- Amount to be used for quarterly tax payments
Basically, as long as those things are covered, we don’t worry about budgeting the rest of our money. The important things are covered, and we spend what’s left until it’s gone. If we have a specific goal (like I’m planning a trip, or my husband wants to buy the latest to-scale depiction of a superhero), we set aside a little for that in the course of the month.
Traditional Budgets are Limiting
For the most part though, we don’t worry about whether we’re keeping within a certain amount on groceries each week, and we don’t worry about whether or not our entertainment “envelope” is approaching empty. We just spend the money on the things we like (or we don’t, and we have a cushion that carries over), and move on.
Of course, this type of approach means we do have to track our spending to make sure we aren’t overdrawing our account.
But, due to the fact that we often use credit cards (for the points) on our every day spending, we don’t usually worry about overdrawing the checking account. We just pay off the credit card when the money comes in, and as long as our priorities are covered, we don’t focus on every single penny that’s going out.
What kind of spending plan does your family have? Do you create a custom-fit budget based on your priorities?