If you’re interested in doing a better job of managing your finances you’ve probably read at least several articles preaching the need to track your spending, develop a budget and then stick to it.
Makes sense, right? I mean how could you manage your money without budgeting?
While there’s nothing intrinsically wrong with the idea of developing a budget there’s a place where a lot of people get bogged down and end up abandoning their budgets and it’s the part about sticking to it.
Sticking to the traditional type of budget requires a lot of self-discipline as it can be very constraining. Plus, there’s the problem created if you overspend in one of your categories, which will mean trying to find money in some other category to move into the one where you overspent. And the odds are that you will have this problem at least occasionally.
Whether those experts that preach the need for budgeting like to admit it or not the idea of budgeting just makes some people cringe. The idea that you need to rigidly assign spending limits in certain budget categories just doesn’t work for people whose lives are flexible. In today’s gig economy many of us simply don’t know when we’ll receive money or how much we’ll get when we get it.
If you’re one of those people that do cringe at the thought of budgeting, we have good news. You can manage your money very effectively with a “no budget” plan.
First, set your priorities
For this to work you will need to have some personal finance software. You will then establish your spending priorities and create automatic withdrawals to cover them. These are items that you will need to have taken out of your account automatically each month. For example, your priorities could be:
- Contributions to retirement account
- Mortgage or rent payment
- Payments on insurance premiums
- Payment on a car loan
- Emergency savings
- Charitable donations
Once you establish your priorities
When you’ve have established your priorities and created those automatic withdrawals to cover them, that’s about it. You then don’t have to budget the rest of your spending. You’ve covered the important things and you can spend whatever is left over until it’s gone.
Set specific goals
There will be times when you will want to create some specific goals such as planning a trip or wanting to buy the latest and greatest gaming console. When this is the case you’ll want to set aside a bit to cover it maybe over the course of several months. Then just keep spending. It’s really that simple.
The joy of the “no budget” plan
The great thing about the “no budget” plan is that it would free you from the need to worry about how much you spend on groceries or drive-through lattes each week. Nor will you have to worry about what to do when your “entertainment envelope” is nearly empty. Instead, you would be able to just spend money on the things you like and move on. Of course, you will need to keep track of your spending to make sure you don’t overdraw your checking account. And if you use credit cards for the points or cash back you should be able to pay off your statements using the same automatic withdrawals as you did for your insurance premiums and mortgage or rent payment.
Other spending plans
Of course, there are numerous other ways to manage your finances. The important thing is to learn what works for you and which you would enjoy using. Here are five spending plan alternatives worth considering if you feel the “no budget” plan just isn’t for you.
Personal finance software
Personal finance software such as Quicken or QuickBooks can be a good way to manage your money when you connect it to your bank accounts. This will ensure that everything is automatically updated, synced and categorized for you. In addition, most personal finance software will allow you to create an unlimited number of categories that you can customize. Are you an aficionado of microbrews or do you buy friends breakfast once a month? You could create categories to cover this. Plus, personal finance software can show you exactly where you stand versus your goals so that you will know if and when you need to make modifications.
Zero-based budgeting
This is where you do a complete reset and start from zero every month. In addition, your income minus your outgo must equal zero. If you earn, say, $3500 a month, then you will need every item that you spend/invest/save equals $3500. If you use this plan, you will know where every one of your dollars has gone.
If you’d like to know more about this method for managing your finances, here’s a video that explains it and also offers some how-to tips for using it to pay off debt.
Spreadsheet it
If you have Microsoft Excel or some other spreadsheet program you could use it to create a spending plan. Even if that seems a bit old school, it can still be an effective way to manage your finances. Of course, you will have to create your own spending categories without any outside help and then remember to input your actual spending on a day-to-day basis.
Checkbook and register
This is very, very old school but it’s possible to use your checkbook and register to manage your money. What you would need to do is make sure you record all of your transactions and then balance your account manually. You would use a credit card to pay for most things and then write a check at the end of the month to pay off your balance – making sure you record it in your register.
Keep it all in your head
Believe it or not, according to the website Bankrate approximately 16% of women and 20% of men keep their spending plans and their budgets all in their heads. I personally don’t think I’d like to try doing this but it obviously works for some people.
Learn what works for you
This is a case where one size definitely doesn’t fit all. You need to determine which plan would work best for you and how to track your spending. This is the only way you can know if you’re spending your money on the stuff that’s really important to you. If you fail to do this, it’s just way too easy to lose track of your money and let your financial goals just slip away.
