Budgeting Without a Budget

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Budgeting Without a Budget

No two people are the same when it comes to how they spend or how they save money, and this is also true when it comes to making a budget.

Some people prefer the meticulous bookkeeping method of tracking their budget down to the last dime. But others prefer using a budget that’s more like a set of guidelines than a series of strict financial statements.

You can “budget without a budget,” so to speak, as long as you follow some smart financial principles.

#1. Know Your Money –

Know how much money you bring home so that you don’t get into debt by spending more money than you make. Keep in mind that the amount you bring home is your “net pay,” meaning it’s the amount of money you have left after taxes and after you pay for other work-related expenses, including petrol for the car and childcare for the kids.

When you think about your “income,” in your mind, don’t think about your total paycheque. Instead, think about your “net pay” after subtracting your work-related costs.

#2. Set Goals –

Once you know your income, it’s time to set some goals, such as paying off your credit card debt in two years, or setting aside some money for retirement.

In general, you should follow something that I call “the 80/20 rule.” Under this guideline, 20 percent of your money should go towards savings for your long-term goals, like paying off debt, saving for retirement or starting a university fund for your kids. Twenty percent is, ideally, the minimum amount that you’d save – if you’re ambitious, try to save more.

The rest of your take home pay can go towards everything else, like paying your normal bills. Set aside your savings first, and force yourself to live on the rest.

#3. Shop Smart –

Don’t fall for splashy ads or that must-have outfit in the store window. Learn to follow smart shopping practices like buying things when they’re on sale, comparing prices between stores, and getting the most from discount and thrift stores. Learning how to shop smarter decreases your overall expenses, and you don’t have to partake in Extreme Couponing to save a few pounds here and there.

#4. Ferret Out Fees –

Every month you should examine your bank and credit card statements for fees. Look at your charges and see if there are some you don’t remember making. Were you hit by a overdraft fee? Did a phone company slip a hidden fee into your account? It pays to double check statements, even if you don’t find hidden fees, because reviewing your statements does present you with a big picture of your overall finances.

#5. Look at Expenses –

In fact, while you are looking for fees, take a minute to see where a good bit of your money goes every paycheck. Do you stop every morning for a cup of coffee? Spend a lot of time at the local pub? Chances are, these things are eating away at your wallet. You don’t need to stop doing them, but you do need to realize how much money you spend here and think about switching your habits if your aim is to save.

#6. Have Savings Accounts –

You’ll need savings accounts – and I recommend opening several. While having multiple savings accounts sounds counterproductive (after all, one benefit to saving money in a bank is to gain interest), the truth is that most banks offer only minimal interest on savings accounts.

So why should you open several? By utilizing different savings accounts, you can save money for different things, such as an emergency account, a house payment, or a vacation fund. It’s psychologically easier to save when you know that one particular account is earmarked for home and car repairs, another account is designated for vacations, and so forth. Plus, you can save for all these goals without having to shift money around from one account to another.

#7. Invest –

Budget or no budget, you should be investing some of your income. Investments build wealth in the long term, and investing your money in a passively-managed, low-fee index fund can help your finances accumulate over time.

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