When Do You Not Need a Budget?

by David Ning · 13 comments

How many of you actually track your spending and keep up with a budget?

A fair share of the emails that arrive at my inbox are budget related. Usually, it’s from those people who don’t want to start one, or ones who claim that they don’t need one. They’re looking for someone to tell them that there’s no need to track their spending. That they can get a free pass because of their unique circumstances.

As far as I am concerned, there are only two types of people who have no use for a budget.

The Person Who Pay Themselves First

If you have a regular income and set your finances up so you automatically send part of your pay check into retirement, taxable and short term savings accounts, you likely don’t need a budget.

Could you use one? Sure, because you are likely able to put more away if you know where it’s going. But you don’t need one if you are putting away a significant portion of your income for the future.

The Responsible Spending Also Don’t Need One

If you make very good income and your expenses are very low comparatively, you also don’t need a budget. You are likely not maximizing the mileage of your money, but you can afford to. I know someone who makes 7 figures a year, but spend less than $100,000 annually. Cutting out taxes and every other obligation, he is still looking at an extremely healthy retirement. Could he think of ways to turn that $100,000 worth of expenses into $80,000? Or could he try to get even more bang for his $100,000 bucks? The answer is likely yes, but doing either would not materially change his life one bit. He can afford to be relaxed about his spending habits.

In his case, I’d also give him a free pass.

Could You Afford to Change Your Budget?

The bottom line is this. The need for a budget has nothing to do with your income nor your expenses separately. Just because you earn $250,000 a year doesn’t mean you can skip the budget, and living on $1,000 a month don’t grant you that free pass either. Look at what you are left with each month. If you are saving at a comfortable level for the future, the pass is yours. Take it if you want.

If however, you:

  • want to save more without earning more.
  • wonder where your money goes each month.
  • are motivated to have a healthier financial life regardless of where you are at currently.

Then by all means, start a budget. Enter those numbers regularly and use what you already have to your advantage. Entering those totals really isn’t hard, and it takes less than five minutes of your day.

Most people who say budget isn’t for them never even tried. Is a budget for you? Hey, it’s your life. You decide.

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{ 13 comments… read them below or add one }

RJ Weiss April 26, 2010 at 8:08 am

Agreed with paying yourself first. If you have identified your goals and are putting money towards those goals every month, then there is no need to budget.

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Keith @ LifeTuner April 26, 2010 at 8:09 am

I managed to track all of my expenses for one month using an iPhone app. Then, I moved on to try some other budgeting methods and fell off track again. Maybe I need to just stick with what works.

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MoneyNing April 26, 2010 at 4:36 pm

There’s more that can be said about these smart phone apps that help you track spending. It’s much easier to enter the total on the spot than to store up a bunch of receipts and try to enter them all periodically.

It would be even easier if there’s a way to automatically recognize the receipts by scanning them in using the phone’s cameras. That’d pretty much eliminate almost all excuses of starting a budget.

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Greg April 14, 2011 at 8:32 am

I have been working on a budget for the past couple months, and I must say tracking my “personal spending” was the hardest and most eye opening thing to do.

It took about a month to get used to accounting for every penny, which I do on the spot on my iphone, and later transfer to an excel spreadsheet I created. Now, it is second nature and I’ve never felt more at ease with finances. I know what I need, what I can afford, and have become WAY more conscious about money I spend. (Sometimes just the thought of having to write down what I’m about to buy is enough to stop me. It certainly helped with giving up cigarettes. 4 months now.)

And with regards to other posts, I have made saving a regular bill on my list no different than utilities or food.

Good post.
–Greg

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kt April 26, 2010 at 9:22 am

i really don’t think that i need a budget because i consider myself responsible with cash (am not bragging). That and the fact that i seem to have an inbuilt calculator that seems to track where my cash is going down to the last cent. I have used a budget at some point in my life but even then i found it unnecessary.

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WR April 26, 2010 at 10:54 am

I prefer the term “Financial Independence Plan”. (amazing how semantics can change the whole game :) ). Budgeting is an important part of it but budgeting alone can be frustrating and ultimately ineffective.

The other parts of a financial independence plan are your balance sheet and your investment outcomes. Balance sheet is just a snapshot of all assets/liabilities and your investment outcomes are just made up of your long term wealth goals.

The purpose of a budget, IMHO, is to free up capital to invest.
The other stuff just gives you the requisite motivation to stick with it.

I have found that keeping track of expenses over a month or two really can be an eye opener. nasty little habits can slip in to your lifestyle without you hardly noticing. With automation comes a bit of laziness. When all your bills are paid and subscriptions renewed automagically, your internal financial picture becomes hazy

I agree that everyone should at least try it, regardless of income.

-WR

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Laura April 27, 2010 at 6:29 am

I’ve never really needed to strict budget and have no debt outside my mortgage. I did have a car loan at one point because my old car just died and I was doing consulting work which involved driving everywhere. I just have a good sense of how much money I can spent without going over. I do pay myself first in terms of automatic IRA payments. I’m with KT, it’s just an internal calculator. I use my credit card almost exclusively and check my balance almost daily. I like to set goals to only put so much on my card in a month, which is budgeting in one sense I guess…

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MoneyNing April 27, 2010 at 9:17 am

Yup that’s budgeting in a way. One thing I would look into is those spending reports offered by many credit card companies. They would categorize them for you for a better look. I’m not 100% certain but there might even be a way to automatically set them up so it goes to a category of your choice, meaning that it will pretty much do the hard work of a budget for you like clockwork.

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Olivia April 29, 2010 at 8:21 am

Maybe I’m old fashioned but I keep a budget. It’s amazing how it sets you on top of all the little things that used to fly under the radar. Since I’m married it has the added advantage of keeping us both accountable to and communicating with each other. We plan as a team towards goals and can see the progress towards them. Just look at the books.

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Jess April 29, 2010 at 8:52 am

I have set up budgets in the past, but it was frustrating for me to stick to it because my income always fluctuates from month-to-month. I earn extra income by working overtime or picking up an occasional house-sitting, pet sitting, or babysitting gig.

I really liked reading this post because it made me feel ok NOT having to budget. About 8 months ago I decided to crack down on my spending habits and I realized where the majority of my money was going. I started being religious about paying myself first by setting up a twice a month auto transfer to my savings account and balancing my checkbook. I also started using coupons a lot more and cooking at home since most of my money was going to eating my meals out. All the little changes I’ve made have really helped me build up my savings while still being able to pay off debt.

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Luis Maqueira April 29, 2010 at 8:59 am

Wow I love it pay it yourself and you are free to spend the rest.
I’m a debt management consultant we void the word budget long time ago. We do a journal entry of our expenses so we know what is going on.
But now I will tell my client NO to Budget let’s take care of investments first and the rest is all yours if your wife left you something.

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Witty Artist July 18, 2011 at 9:03 am

I agree with you about those 2 situations you’ve mentioned as not needing a budget. But keeping track of spending and monitoring one’s financial sector could do no harm even to that type of people who don’t need to make money related worries. As you’ve said, doing it regularly doesn’t take much time and could help you keep a good balance. Thus you can see on what you spend more, where you could save some money, your regular revenues and expenses etc. My opinion is that everyone should have a budget. Even if you were a king :)))) :)

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John Schmoll July 20, 2012 at 1:34 pm

Thanks for the article. Working with a budget can be difficult in the beginning for many. It seems like such a tedious task to track expenses. The beauty, though, is that by sticking with it you get a much better picture of where all your money is going. This can help give you more freedom to spend/not spend if you know where your money is going. I do agree that some of the available apps can make it much easier. I have not personally used any of them as I am old fashioned with my Excel spreadsheet. :)

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