Michael Reynolds | January 10, 2022
[Prefer to listen? You can find a podcast version of this article here:E130: Budget Alternatives for People Who Don't Want to Budget]
I'll be talking about a topic close to my heart: budgeting. Now, before you click away, this isn't your typical budgeting discussion. Today, we're going to explore budget alternatives for those who dread the word "budget". So, if you've ever felt a shiver down your spine at the thought of budgeting, this is for you.
I confess, I'm a fan of budgeting, and I believe it's crucial to any successful financial plan. It's a key to unlocking intentionality in your cash flow. I'm a devoted user of YNAB (You Need a Budget), a budgeting tool loved by many, including myself. However, I recognize that not everyone shares this passion for budgeting. Therefore, I want to ensure we discuss other ways to manage your cash flow if you're not a budgeting enthusiast.
Zero-Based Budgeting
Let's begin with the strictest form of budgeting - zero-based budgeting. In this method, every dollar is allocated a specific job, making sure each dollar has a purpose. This approach means that every dollar that comes in is assigned to certain budget categories like rent, groceries, insurance, investments, etc. It's called zero-based because ideally, you don't have any dollars sitting around purposeless. The goal is to have your budget balance to zero, meaning no money is left without a job. While this is a meticulous and detail-oriented approach, it might not be for everyone.
Pay Yourself First Budget or Reverse Budgeting
If you're not inclined towards detailed budgeting, consider the "pay yourself first" budget, also known as reverse budgeting. Unlike the zero-based budget, this approach doesn't require meticulous tracking of expenditures. Instead, it prioritizes savings and investments before anything else. At the beginning of each month, automatic transfers are set up to your savings accounts, retirement funds, or other investment accounts. Once the important stuff is taken care of, the remaining money can be spent freely. This approach suits those who prefer a low maintenance budgeting style.
Envelope System Budgeting
The envelope system is another budgeting alternative. While traditionally this meant using physical envelopes filled with cash for each category of expenses, a modern take on this could be setting up multiple checking accounts for different categories. Just like the envelopes, each account represents a different category of your budget, helping you manage your spending more visually and tangibly.
The 50/30/20 Budget
Another popular budgeting method is the 50/30/20 budget. In this method, you allocate 50% of your income to necessary expenses (like rent, utilities, and food), 30% to discretionary expenses (like dining out and entertainment), and the remaining 20% to savings and debt payments. This method helps you maintain a broad perspective of your spending without having to scrutinize every single transaction.
The No Budget or Anti-Budget
The last method we'll discuss today is the 'no budget' or 'anti-budget' method. This simply involves not spending money you don't have. It requires keeping a close eye on your bank account balance and slowing down your spending. It's a simple and intuitive approach that might work well for those who find formal budgeting systems overwhelming or restrictive.
Not everyone is cut out for strict budgeting, and that's okay. What's important is finding a method that works for you, aligns with your lifestyle, and helps you manage your money effectively.
