The No-Budget Budget
As a personal finance writer, I’m conflicted. I really believe in the power of budgeting — especially a zero-based budget. It can do amazing things for you. In fact it’s awesome, especially if you’re in debt or working toward some other financial goal.
But I know that many people hate budgeting. Sadly, extolling the virtues of one isn’t going to change their mind. Heck, even I don’t use a budget anymore (although I found zero-based budgeting massively helpful for many years, and still highly recommend it.)
So if you don’t want to give budgeting a solid try (meaning for at least 6 months), or if you find yourself with extra money available every single month, consider using the no-budget budget.
Why use the no-budget budget?
Not budgeting at all is easy, but it’s also often disastrous. Bills come in, and you freak out because you don’t know how you’re going to pay them. Or you really want to do something, but don’t have the money. So you do it anyway and put it on a credit card. Or you miss out on something you could have easily afforded if only you hadn’t spent all your money on something else.
Sure, you don’t have to “constrain” yourself by following a budget, but you have to deal with all of those consequences. They are not fun. Using the no-budget budget can help you avoid those.
How it works
The no-budget budget works like this. You’ve only got to know two things: how much money you bring home in your paycheck, and what you must pay each month.
Check your latest pay stub to figure out how much you bring home monthly, and look at your latest bank statement (or check online if you toss those) to see what you’ve paid in the last month. That’ll be stuff like your house payment, electricity, water, and whatever else you’ve committed to pay. Don’t forget about things like car and homeowner’s insurance, if you don’t pay those monthly.
Now add what you make and your bills up. If what you make in a month is plenty more than what your regular expenses are, you’re a good candidate for a no-budget budget. If you’re in the hole, you’ll have to either make some cuts first or start bringing in more money.
Setting it up
Once you’ve determined that a no-budget budget will work for you, set it up by:
Arranging to have at least 10% of your take-home pay automatically sent to a separate savings account each payday.
Arranging to have all of your fixed expenses paid automatically every month. Your fixed expenses should include funding retirement, unless you’re setting aside money for that pre-tax.
Whatever’s left each month after that is yours to spend or save as you please. And when it’s gone, it’s gone. That’s it.
Tip: If you have a hard time remembering what will be coming out of your account, you can have your paycheck direct deposited into two accounts: one that all of your bills are automatically paid from, and one that you use for everything else.