A budget you can stick with: the Anti-Budget
Look, we all know that budgeting does not evoke happy feelings in most people. For most people the word “budget” is a cue to stop listening. But what if I told you that budgeting could be pretty easy? That you don’t need to count every penny? Today we are going to talk about the “anti-budget”, what it is, and how to do it.
The Anti-Budget: Budgeting Made Easy
OK, here’s a little secret. I don’t count every penny every month. Frankly, that sounds stressful. I don’t freak out if I have extra money in my gas budget but run low on my food budget. You don’t have to know your exact spending numbers to be directionally correct.
I do check in on our spending throughout the month. That check-in does NOT involve any Excel spreadsheets (full disclosure: I did create my base budget using Excel, I just don't track it every month). It involves pulling up our banking app, signing in, checking our online bill pay and taking a look at the credit card statement.
You can do this. In fact, you probably already do a lot of anti-budgeting anyways. You probably already sign into your checking and savings accounts once or twice a month. You probably already know roughly how much you make, after taxes, each month.
OK, I’m curious. How do I “anti-budget?”
I’m so glad you asked. It’s easy, and you can roll through the set-up quickly. Grab a pen and paper and write down all of your bills. This information will all be online, unless you pay your bills in cash. Remember, some bills will fluctuate, so don’t use an electric bill from May that cost only $115 when your bills in July/August/January/February run $200. If you don’t pay your bills online just hold onto them for a few months in a file to get an idea of your average spend.
Include all debt payments such as mortgages, cars, student loans and credit cards. Include these in your base budget. Now, write down your income, subtract your bills and debts, and figure out how much you have left over.
Take Home Income - Debts and Bills = Discretionary Income
This discretionary income will cover food, gas, savings, extra debt repayment and random expenses. It’s smart to get a good idea of what your targets are for some of these areas especially groceries and restaurants. But, since this is an anti-budget, they don’t have to be super-specific.
Make sure you allow for something random in your budget every month. Something always breaks, or if you’re really (un)lucky you get to replace all four tires at the same time.
Get ready for it: automate.
If you have high interest debt (think credit cards or a high interest car loan) set up an automatic payment to pay it down. Don’t just pay the minimum payment.
No debt? Start saving. Automatically. Build an emergency savings account, sign up for a 401(k) plan or open an IRA if you qualify for one.
Or, if you are the over-achieving type, do all three.
Pro-Tip: Just getting started on budgeting/using a spending plan? Run all of your expenses through one account so it’s easier to see how your spending stacks up to your income.
Know Your Trouble Spots
While I don’t count every penny, it is important to have a sense of what kind of spending tends to trip you up. For example, if you enjoy picking up some new fishing gear or golfing get an idea on what you can spend on those hobbies each month. Another big area I see is dining out and groceries.
The point of this is not to skip dining out but to create greater awareness of our spending.
For our family the trouble spots are kids' activities, dining out and groceries. How do I manage this? For kids activities and dining out it’s mostly a matter of awareness, as in I have to actually decide to sign up for that activity or not. We try to think about what we choose to spend our money (and our time) on and whether or not that will add to our happiness or add to our stress.
Grocery shopping is a little bit trickier. Clearly, I have to buy groceries multiple times a month. Since I shop weekly for groceries (who am I kidding, twice-weekly) I broke my grocery budget down into a weekly target. Then I know that as long as I stay close to that number I’ll track OK for the month. Again, if I run over one week I can cut a little the next week to stay within my spending plan.
If you are wondering how your grocery budget stacks up you can refer to this USDA report that breaks down monthly food expenditures by budget level. I have found these to be fairly generous, particularly if you exclude wine and beer.
Which I do.
Yes, we have a separate wine budget - one big trip a month results in some odd looks from the cashiers at Trader Joe’s, but it works for us!
What if my big expense is ongoing debt?
Don’t be afraid to make big changes. If your car payment is $500/month and your insurance is another $150, be honest with yourself. If you need to save money or pay down debt you may need to drive something a little more economical.
Downsizing a home can be trickier because it costs so much to sell a house, move, get a new mortgage, etc. However, it is worth it to run the numbers. If you need some help, a Fee-Only financial planner that offers hourly engagements can help.
On the flip-side - if you are considering buying a new home, make sure your financial house is in order first. Pay off your debt, build your emergency savings account and start saving at least 10-15% of your income for retirement.
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“If you don’t know, now you know” - Notorious B.I.G.
There are several key takeaways here.
The first is self-awareness.
If you aren’t paying any attention to your spending, then the anti-budget tactic won’t work for you. An anti-budget isn’t an excuse to not pay attention to your spending. It’s just a way of simplifying and taking some of the angst out of managing your money. If you don’t have a good understanding of where your money goes every month then start noticing how much you are spending on different items.
Second, automate your debt payments AND your savings.
Include these in your budget. If you don’t, you will just be treading water and you won’t make much progress in terms of building your financial freedom. I can't stress enough how important it is to automate your savings and debt repayments.
This may be the single best thing we have EVER done to build wealth. Seriously.
Third, don’t be afraid to re-evaluate current debt commitments.
What I mean is, be honest, if the car payment is too high, see if you have an opportunity to downsize. If you are looking at a new house make sure your budget can support your savings goals and your new mortgage.
Remember, every dollar you have to use to pay someone back for a car, house, or boat represents time you spent working to earn that dollar. Don’t give away your time so easily.
Finally, there is no such thing as perfection.
So don’t worry about messing up or doing it wrong. You can do this!
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