True or False: the first step in getting your financial house in order is to make a budget? Instinctually, our best guess is “true.”
If you’re like us, you’ve probably tried this approach more than once with little results and found yourself frustrated and off track. But, what if we were to tell you that though well intentioned, there is a better way than following this conventional wisdom.
Here at Consolidated Planning, our goal is to help put you on the right path for you to achieve all that is important to you in planning for your retirement and through your retirement.
In what follows, we’ll help you understand how to shift your perspective when it comes to a “budget,” and why it can fail you, and share four ways you can have the flexibility to spend all while working towards a stable financial future.
What’s The Problem With A Budget?
Now, don’t get me wrong, creating a budget framework is not a bad idea if you need help setting boundaries around your spending. We as financial advisors help our clients do this all the time.
But, there IS a big difference between being intentional about directing your money towards specific priorities and making a promise each month of how much and on what specific things you’re going to spend.
The problem with a budget is that it’s very difficult to stick to because it’s just a guess. Life is full of things that pop up and it seems like all of them cost money. And they usually do. We tend to think of potential budget disruptors as negatives like losing a job or having an accident, but they can be positives as well. You win an award at work and go out with your coworkers to celebrate. Your significant other has a milestone birthday and you throw them a fabulous party. Your cousin announces she’s getting married and asks you to be her maid of honor. You get the idea.
The point here is that budgets are by their nature restrictive and rigid. They can serve to make money feel tight and scarce which can cause feelings of anxiety around spending.
This creates an unhealthy atmosphere, especially with couples, and can be a key contributor to arguments and unhappiness. We have seen cases where people have foregone important life experiences simply because it’s not in their rigid budget (but the money was available).
That’s not to say you should engage in activities you can’t afford. But, giving each dollar you earn a purpose is a key step to curing those budget blues and to getting on track for good.
4 Ways To Handle Your Money Without A Budget
A good way to go about this is by allowing some flexibility into your handling of money. Following some simple rules can give you a feeling of freedom and the financial confidence to know you’re on track without ever having to go through the unpleasant task of creating and sticking to a monthly budget. Here’s how:
#1 Understand Your Monthly Income
Notice we said understand here. It’s not enough to just know. Rather, a simple assessment of all sources of income from employment, hobbies, side hustles, etc. is all that’s needed to determine your net-income, the after-tax money coming into your household monthly, including a spouse or partner, if applicable.
#2 Pay Yourself First
Set aside what’s needed to fund the goals in your plan first. This is the part most people don’t do. We spend on lifestyle expenses first and only fund our priorities with what’s left over. Flip this script and make yourself your biggest monthly creditor.
These dollars can go towards funding any of your short or long-term financial goals like an emergency fund, travel, buying a house, retirement, college for kids, extra principal payments on loans or credit cards, etc.
You’re probably not going to be able to do everything all at once, and that’s okay. Pick a few top priorities and start there.
From what’s left over pay fixed costs including mortgage/rent, insurance premiums, minimum loan payments, car payments or any other fixed expenses that you incur monthly.
#3 Set Aside Enough Income To Cover Monthly Variable Expenses
Your variable income might include things like utilities, groceries, entertainment, and restaurants, to name a few. These are the expenses where if you’re prone to overspending, making a loose budget to set some guidelines around spending in each category can be helpful.
This doesn’t need to be incredibly rigid, just make sure you don’t go over the amount you set aside. Be sure to leave yourself some margin, or an amount above and beyond what you think you need each month, to cover those unexpected pop-up expenses. Anything left over can be spent however you wish or added to your priorities.
#4 Track Your Expenses
Then going forward, review your spending each month to see how it lines up. By paying yourself first you’ll be funding the things you said were most important to you and that progress will feel good and motivate you to continue.
You may find that you over or underestimated certain expenses and need to readjust what you’ve committed. Doing this for several months will help identify patterns and may highlight some areas that you can trim to redirect funds.
Plan For The Future Without A Budget
At the end of the day you only have 100% of your money regardless of whether you earn $20,000 or $200,000. Now, how much of it sticks to your balance sheet is the direct result of intentional planning, or not.
If you’re ready to put away the spreadsheet while still working towards your goals, this might be a good starting point for you.
With any plan, it’s smart to revisit your process when there is a big change in your life to see how other aspects may be impacted. To take more guesswork out of planning for those expected or unexpected changes, talk with a planning advisor at Consolidated Planning to help you prioritize your goals.
Exp. 7/2027
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Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
This material contains the current opinions of James M. Matthews and Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. CP Planning Group, Inc. is not an affiliate or subsidiary of PAS or Guardian.
