Strange to say it as an accountant, but I don’t budget. Not really, anyway. Not the way I used to. Not the way so many people are told to: tracking every purchase, every expense, line by line. I’m not saying that’s not important to do and extremely beneficial for many. I even teach a budget workshop where I help people do exactly that.
But for some who have developed a good understanding of their expenses and know what they need to save and how they’ll get there, the need for detailed budgeting may start to lessen or even disappear.
Instead of tracking my expenses each month, I track two things:
1. If I hit my savings goal for that month
2. If I paid off all of my credit card balances and bills for the month
As long as I can say yes to those two things, I don’t have any need to track my expenses at a detailed level.
If you’re not sure what you’re saving toward, my free FI Number Calculator is a good starting point, and once you have that number, the Monthly Savings Goal Calculator can help you work backward to a monthly target.
Both tools take some effort, but they might be able to help you get to a place where you can automate your monthly savings and feel more confident in hitting your long-term savings goals.
Sure, there could be places I’m not optimizing. And yes, I’m simplifying it by saying I don’t budget, because I do at least budget a little without realizing it. I make a mental note if I spent a bit more on something during the month so I know to pull back later on. Or if I know I’m going to spend on something like a nice dinner or upcoming trip, I’ll make an effort to hold off on a few purchases here and there in the current month.
The budgeting happens in my head, at a high level. No item-by-item record of receipts.
I’ve gotten pretty good at it now, mostly because I make a point of being aware of what I spend overall in a general month and have automated my monthly savings. I give myself some margin by keeping separate accounts for travel or emergencies so when something pops up, I’ve already “budgeted” for it. That means I really only need to stay on top of my recurring monthly costs.
Think about your typical month. I bet most of the time, the majority of your expenses are the same types of expenses. Gas may go up or down each time you fill up, but you have a general sense of how often you need to stop. Same with how often you go for groceries or buy lunch at work.
But be careful. This is also the argument so many tell themselves for why they too don’t need to budget: “Why go through the hassle of tracking and recording everything? I can just do it in my head.”
This gets to the heart of what I said at the beginning. Are you hitting your savings goals? Are you able to pay off your credit card balances each month? A lot of people aren’t. And that’s the difference.
All that said, I still understand my expenses holistically. I know approximately how much I spend in a year overall. My credit card app has a nice feature that totals my spending so I can compare monthly, quarterly, or annually.
So I may not budget on a regular basis right now, but I do look at my expenses, group them together, and sum them up occasionally. And I’ll likely do that more often as I get closer to retirement so I can better prepare for how much cash I’ll need to have on hand and how much of a nest egg I’ll need to be able to cover my annual withdrawals.
Line-by-line budgeting is still the right tool for a lot of people. For me, it eventually turned into something I only pull out when a bigger decision calls for it, like figuring out what retirement will cost. The rest of the time, it’s enough to know my automated savings are on track and my credit cards and bills are paid in full.
If you’re not that confident in your spending yet, a few months of line-by-line tracking is still the best way to build that awareness. Your credit card app may already be tracking some of that for you.
And if you’re not so sure what your savings goals are or even should be, circle back up to those free tools I mentioned and give them a go.
— Brad
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This is meant to help you think through financial decisions and tradeoffs—not tell you exactly what to do. It’s general in nature and not personalized advice (see full disclaimer).