The Power of Not Budgeting

I suck at budgeting. I’ve recently realized it’s a complete waste of time.

I’m sure you have felt with way at times before, too. Deciding how much to spend on groceries, personal care, and entertainment each month. If you’re like me, you’ve downloaded hundreds of budget templates online. You’ve even tried out many budgeting tools.

Well guess what – there’s a better way. For those of you that can’t stand drawing up a budget each month, I feel your pain. It’s time look at the power of not budgeting.

No, this doesn’t mean you should not be frugal or manage your money. If you don’t do those things you’ll end up in the financial doghouse. You’ll end up broke.

This is just a simpler way to manage your money, and without guilt.

Pay Yourself First

The concept of paying yourself first is simple. You take a certain amount of money out of each paycheck and send it to your savings and investments. Before you even see it.

A common type of paying yourself first is having 401(k) deductions taken out of your paycheck. It’s money you never see, so you are never used to having it.

Take the same concept, but apply to more than just your 401(k). You should set aside at least 20% each pay period to go to your savings and investments (see below). If you can’t manage that, just try something to start.

Every little bit helps, and with the power of compounding, you’ll soon see your money grow. You don’t have to worry about how much money you’re budgeting to save because it’s already done for you.

Further reading: Pay yourself first

Conscious Spending

Ramit Sethi, author of I Will Teach You To Be Rich, talks about the concept of conscious spending in his book. This means you spend more on things you care about and less on things you don’t care as much about.

To do this, you can adopt what Ramit has called a conscious spending plan. It’s a pay-yourself-first kind of plan. You automate your saving and investing, then spend the rest how you want. Without guilt.

The breakdown that Ramit suggests as a starting point are:

  • 60% – fixed costs (debt, rent/mortgage, utilities, etc.)
  • 10% – investments (Roth IRA, 401(k), etc.)
  • 10% – savings (unexpected expenses, vacations, etc.)
  • 20% – guilt-free spending (see “using cash” below for an added bonus)

I think you can get away with 10% or less on guilt-free spending, but do whatever makes sense for you. This is just a suggested starting point. If you can increase your savings percentage, go for it.

Check in on your balances to see how your money is doing at whatever frequency you want. If you’re running low, it might mean it’s time to adjust these percentages. If you consistently have a high dollar amount in your checking, it might be time to bump up the savings.

The point here is to not complicate things. Pick a percent to set aside and run with it. Check in and see if it’s working. If it’s not, make changes.

Further reading: Conscious spending: How my friend spends $21,000/year on going out

Decision Fatigue

Why do you think Mark Zuckerberg wears the same grey shirt every day? It reduces the amount of decisions he has to make.

Think about someone like Zuckerberg. He’s making decisions all day, every day, that impact billions of people. He doesn’t have time to worry about which shirt he’s going to wear. Here’s what I mean:

The same goes for you. While you may not be one of the richest people on the planet, you still make tons of decisions every day. Some are conscious, some are un-conscious. But we’re still making decisions.

Take any small decisions you can out of your day. Like creating, adjusting, and updating your monthly budget.

Cash

Using cash is a great way to manage your money without creating a budget. Set aside a certain dollar amount each week that you can use how you want.

This is a great way to use your guilt-free spending within your conscious spending plan. Once the cash is gone, it’s gone.

As I shared with you before, cash is

  1. Finite
  2. Simple
  3. Tangible, and
  4. Accepted everywhere

It reduces thinking. You either have it or you don’t. If you don’t have cash, you can’t buy something.

It’s like when you were a kid and got an allowance. If you didn’t have the $10 to buy the toy, you couldn’t get it (until you get your parents to give in).

It’s not like you could have gone to the ATM or whipped out a credit card to buy the toy. You have the money or you don’t.

Procrastination

Creating a budget is work. I procrastinate with things I consider to be work all the time. Hence, I procrastinate on making and sticking to a detailed budget.

Neil Fiore, author of The Now Habit, says procrastination is a strategy we use to avoid our fear of failure. He says we procrastinate on tasks for three main reasons:

  1. We want to do a good job and live up to the expectations of the task
  2. We find the task boring and it’s hard to get started
  3. We’re not sure what a “good job” is or how to meet the expectations

When we’re faced with these types of tasks (like creating a budget) we can either

  1. Start working on the task, which will be boring, and risk failure, OR
  2. Don’t start working on the task and avoid boredom, possible failure, and uncertainty

Which option do we normally pick? That’s right, the second one. This is because it temporarily helps us avoid boredom and a fear of failure. But how helpful is that?

Further reading: Procrastination

Have Fun

Speaking of procrastination, notice I used the word “work” a lot there. When we associate tasks with “work” we’re less likely to do them.

We learn the concept of “work vs. fun” at a young age. Remember time-out? When you did something bad, you lost something you thought was fun. Like playing outside (or video games if you were born after 2000, since no kids play outside anymore).

Neil Fiore also says we’re instilled with a sense of perfectionism, and it’s not healthy. We’re conscious of how we perform. We feel like we need to do the best we can. If we don’t, it may show we aren’t working hard enough.

These factors lead to us creating unrealistic expectations. So you might think that anything less than top-level performance isn’t enough.

How does this impact budgeting? If you think of budgeting as “work” you’re more likely to put it off. You may also create lofty expectations of yourself that you’ll never meet.

So make money FUN. Make it something you want to do. The cool part of not budgeting is that it makes it okay to fail.

If you drop below a certain balance in your checking account, it’s okay. Relax. Swing some money over from your savings and try again next month.

Conclusion

At the end of the day, you have to decide if it’s worth your time and energy budgeting. You might think it is. You know what I say to that? More power to you. If I could, I would.

If it’s not worth your time and energy, consider the points I discussed above. Try a percentage breakdown like Ramit suggests to start and go from there.

You won’t be perfect, and you’re going to make mistakes. That’s okay. But if you don’t try, you’ll never know if you can simplify your money to be more successful.

Action Items

Log on to your bank account, paycheck system, or whatever you use to tell your money where to go. Set aside at least 20% for saving and investing.

If you can’t do that much, it’s okay. Just start with something. If you can do more than that, go for it. The point is – get started today to start thinking about tomorrow.

 

31 thoughts on “The Power of Not Budgeting

    • I agree. For some people this could be perfectly functional and remove A LOT of stress. For others it could be a recipe for overspending. If I got monthly paychecks and did this, I’d be sure to split the cash into two, making it less likely that those funds would run out and leave me hungry or running for the credit card on the 20th.

      I like how you allow for adjusting the percentages. Depending on your income, 60% might not be enough for fixed expenses. In that case the goal of boosting your income is probably top priority, but allowing for that adjustment and not making the percentages hard and fast makes it potentially workable for anyone.

      • Hey! First off thanks for reading and commenting. And yeah – people tend to get too stuck on following a certain way of managing their money. What works for one person may very well not work for another. The percentage breakdown that Ramit suggests is a good starting point, but I think most people living a frugal life and being conscious of their spending can do much better. Even if not right away, it’s something to work toward.

  1. Your points about decision fatigue are spot on. I suppose I budget not to track my spending or reign it in, but rather to identify areas I can try to scale back on. I like trying to target different areas to reduce – currently battling insurance premiums! 🙂 But I’m all for everyone figuring out what works for them as individuals (or families).

    • Hi Penny! That’s a great way to budget too. I used to check in on where I was spending every month, almost on a daily basis. it got to be too much. That’s awesome that it’s working for you though! Right now we are using cash for any “guilt free” purchases and sticking half of our paychecks in savings. If we mess up and need some extra cash, we grab from the savings. Thanks for reading and commenting 🙂

  2. Hey Chris,

    In a previous life, I did budgeting exactly WRONG, which ending up costing me more money in the end than necessary because I looked at each of my budget categories as money that SHOULD be spent, rather than COULD be spent. Meaning, if I started to accumulate more cash in my Gas budget than I expected, I would sometimes move that extra cash over into my “Spending” category and promptly waste it. Ugh.

    Now, my wife and I employ a bit of a hybrid approach. We employ the “pay yourself first” principle by maxing out both of our retirement accounts as well as put a pretty big chunk of money into our brokerage account. At the end of each month, we save around 70% of our total income.

    The remaining 30% gets budgeted. We have our fixed costs like mortgage, but we keep our food and restaurant budgets fairly well controlled because it’s EASY to go a little overboard in those categories. Our Entertainment / Personal funds are usually the first to get cut when unexpected expenses happen, and we’re fine with that. Discretionary spending is the easiest to cut.

    I think budgets can be a positive for some people, but it largely depends on the person. If you’re like the previous me, then budgets wind up helping you to rationalize more spending, which of course is counter productive. But if you’re like the current me, keeping a budget can help make sure that you know exactly WHERE your money is going every month, and that’s important.

    For example, without a budget, it can be tougher to keep track of some of the automatic monthly subscription fees that people tend to pay and forget about. Magazines. Gym memberships. Cable or satellite services, Netflix, etc.

    Or if I want to splurge and get a fresh brick of parmesan cheese one month, the budget will tell me whether or not I have enough to do that (I LOVE parmesan). Without a budget, I might be rationalizing that expense to myself every month. 🙂

    In the end, I like you’re 100% right that budgets aren’t necessary to kick ass in personal finance. And in some ways, budgets can actually make things worse. For my wife and I, our budget just makes our decision points less strenuous every month because it’s the budget that decides whether or not we have enough to splurge or not, not our brains. Our brains lie. Numbers don’t! 🙂

    Awesome article as usual.

    • Haha, excellent points Steve! You just wrote a mini blog post there! I love it! That’s sweet that your budget works – and I love the hybrid approach. I think the point is to have a handle on your money – however you choose to do it. If it’s categorizing and limiting yourself, great. If it’s giving yourself a stack of bills that has to last you a month, so be it. I think you get the point though – as your net worth is proof! One thing I love that you said is the monthly subscriptions. If you aren’t paying attention to those, they add up very quickly. Great tip Steve. Thanks again for reading 🙂

  3. I do this too and it’s very liberating, but to start we had to do a budget in order to know where our percentages are versus what we’d like them to be.

    Once you pay yourself first, you basically achieve 90% of the purpose of a budget — which is to spend less than you earn so you can save it for goals, retirement, whatever. By saving first, you constrain your spending and it’s easier to pay yourself than it is to budget and track everything.

    And I’m all about reducing decision and willpower fatigue! 🙂

    • Hi Jim! You make an excellent point. There usually is a point in time where you need to create some type of budget, before you can start paying yourself first. One thing about this strategy that worries me, though, is that some people will budget more money for things like “entertainment” and “guilt-free” money than they really need, THEN pay themselves. For example, “oh I only have $100 left after my budget was created, so I guess I’ll start using that amount as my ‘pay myself first’ percentage.” Wrong approach. I like your concept of just understanding where the money is going, but sticking to a set percentage of paying yourself first, and working a basic budget framework into the remainder. Great thoughts Jim. Thanks for taking the time to read my blog and comment, I appreciate that!

      • True, that type of anchoring is a cognitive bias we have so that is a weakness of tracking before selecting a percentage. Though I’d argue that someone willing to budget in the first place probably is motivated to reach a target amount to pay themselves first, it is a self selecting population. 🙂

  4. This is an interesting viewpoint when personal finance and budgeting go hand-in-hand (at least in my world :P)

    I personally love my budget! But it’s interesting to hear what it’s like from your position Chris! 😀 this helps me expand my defensive viewpoint on teaching people to have a budget.

    • Hi Jaymee!! I think it’s great that you are able to stick to a strict budget (try saying that 10 times fast???) and that it’s working for you. I will say that those who can abide by the strictness can really keep their spending in check. For people like me, though, it never lasts. I’m glad my post was able to get you to expand your thinking a bit – that’s all I was after! Thanks again for making time to read my blog and write a comment – that means a lot!

  5. Paying ourselves first is the core strategy of our entire financial plan. We sock away huge amounts into 401k, investments, cash savings and extra payments against the mortgage before we ever realize we have that money. The result is, we don’t have to budget, we can spend down most of what remains in our accounts, but we still save a ton. We’re big fans of this approach. 🙂

    • YES! That’s exactly what I’m talking about. So because you’re socking away all that money, not only do you not have to budget, but you a) live frugal by default and b) will reach financial independence earlier than you can imagine! That’s awesome guys!

  6. I like paying yourself first, it does lean towards making the right decisions with your money before you can go and screw anything up, saying it nicely. I still prefer to budget this out and keep our eyes on items that would still destroy our spending/budget eg groceries, eating out, etc

    I do love the gray shirt to keep things simple, I’m still waiting for the day where my options are flip flops or boat shoes!

    • What’s up ES! Yeah… Paying yourself first has been proven to work. There’s some psychology behind it. Money you don’t see, you don’t know exists. I think it’s great that you continue to budget your expenses to make sure you’re on track. As I said, for some people it works wonders. Do you have any tips? And to your last point… I am totally with you on the flip flops or boat shoes. Thanks for reading and commenting!

  7. This is pretty similar to our approach. We found monthly budgeting was a waste of time and wasn’t affecting our spending. Instead we have out investments and charitable giving automatically withdrawn so we know what we’re working with after that. And we simply try to spend as little as possible, while meeting our needs and still having some fun. That said, going sans budget probably wouldn’t work for everyone. But either way it’s imperative to pay yourself first!

    • Hey Kalie – that’s awesome that the no-budget budget works for you. Also – good for you for having charitable giving taken out! Any tips you’d share for spending as little as possible? Paying yourself first is key! Once you see that money, your mind thinks is fair game to spend! Thanks for reading my blog and commenting 🙂

  8. My husband and I are pretty much the world’s biggest budgeting fans. I think it actually reduced decision fatigue to make all the spending decisions at one time, and then just follow the budget. However, as part of the budget we have lines for car repairs, miscellaneous, fun, home repairs, medical etc. which makes it possible to live life guilt free without appearing to be automatons.

    Great post!

    • Hi Hannah! That’s an interesting take. It makes sense though. Spend the time setting your budget once then just roll with it. Do you guys re-evaluate the budget? If so, how often? Also how do you ensure you’re sticking to the budgeted categories each month? Do you use a tool or an envelope system of some kind? Either way, I think it’s great you’ve found what works for you. The point here is that there’s no wrong way – as long as we’re saving money and living below our means! Thanks for reading and commenting 🙂

  9. Fantastic overview – I am definitely in this school of thought! I’ve attempted budgets (the hundreds of templates like you pointed out), and it just never resonated with me well since every month varies incredibly. I started viewing budgeting as more of a “framework” where I have reach goals, but broke down my expenses by percentages & the paying myself first method. I have all my systems & autodeposits in place to myself first throughout the month, ramp up the savings when I can, and whatever is leftover I can spend to my discretion! You’re right – viewing it as fun makes it much less of a task, or work. Great post! 🙂

    • Hey Alyssa, thanks for your kind words! Cool to see what works for me works for you. And you’re right – expenses (and sometimes earnings) vary from month to month, so a strict budget can be difficult to stick to. I appreciate you taking the time to read and comment! Thanks!

  10. This is good stuff. I think “Paying yourself first” is often overlooked and not set high enough on the priority list. I think it teaches you discipline without the necessity to write down every pack of gum that is purchased. I like to budget my months out, but not in a obsessive way that some super frugal bloggers claim. I think I’d go nuts!

    Anyway, good write up!

    -DP

    • Hey DP! Thanks for reading and commenting! Paying yourself first is such a basic concept of budgeting, yet it’s super powerful! And yeah, jotting down a pack of gum is insane. I’ve tried super-budgeting and it’s just bad for me. One thing I really hated was splitting up purchases from say Target, or any other store where you buy things from multiple budget categories. That was awful to do!

  11. You really do make budgets sound like a pain in the butt and given how I do my finances I can’t decide if I follow a true budget.

    I don’t decided every month what each section will have. That’s a static number to the right and it only get adjusted if we are doing really well. Like we planned $200 for gass but where consistently hitting below $150 that we lowered it to that. Also it’s never been a daily task for us. We mostly naturally stay within the parameters. We do have a catch all pile with $200 allocated but that fluctuates like crazy so we don’t even use budget limit to change spending towards the end of the month.

    Mostly we just capture all that happened.

    But I did just finish reading IWT book and have front loaded savings

    • Hey Roamer! It sounds like you’re doing sort of a hybrid approach, which is great! The key for me is paying myself first, which you’re doing. One thing I found was that I would sometimes look at categories with “availability” and think I had that money to spend, or move purchases to different categories to trick myself. It was stupid. I think it’s really cool that you’re able to stay within and below your budget each month. I’m sure when you combine that with front loading your savings you’ll be financially independent in no time (if you’re not already!). Thank you for reading and commenting!

  12. I don’t really like having a budget because I don’t like my spreadsheet telling me I can only spend $50 on food. I want to have the last say on how I’m going to spend my money! Haha! But in saying that, I think not having a budget only works for me because I track my expenses and know roughly how much I truly need for living expenses. And also because I am now confident with my money habits (of course, that wasn’t always the case). I am a huge fan of paying yourself first, and of giving yourself a raise, too! Great list Chris, thanks for sharing!

    • Hi J! Sounds like you’re on the no budget budget too! Glad it’s working. I felt the same way at times… “Oh I only have $6 left for groceries so I’ll eat ramen this week” – no way! I keep tabs on my checking account balance and check in every so often, but not like I used to. I used to try to manage every purchase and it was driving me crazy!! Anyways, awesome to hear you’re paying yourself first. You’r savings will grow in no time! Thanks for reading and taking time to comment 🙂

  13. Very interesting points here, Chris! I have always thought that you really do need a budget in order to manage your money well. But I didn’t consider that some personalities really just cannot budget. Like you, they will fail every time. I would consider both the conscious spending plan and cash ways of budgeting, though, so you really are budgeting even if you’re not writing anything down. Way to think (and live) outside the box!

    • Hey Charlee! I have tried and tried again, and I finally realized it just wasn’t working. It actually adds more stress. I would really recommend using cash – it’s worked wonders for us. Thanks for stopping by to read and comment 🙂

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