Good post! I too don’t have a budget, but I have the “frugal gene” that subconsciously drives my every decision. If anything, my wife thinks I need a budget to increase my spending 🙂

Best Wishes,
Dividends4Life

Personally, I really like having a budget. It provides an impetus for me to keep my spending under control. Not that I’m spendthrift but I’ve had periods in my life where my spending creeped up.

I agree with you about the tendency to spend up to your budgeted limit. I try to make spending under budget a kind of competition.

Budgets are just like diets. Everybody has one, and none of the people who have them are getting skinnier or wealthier.

Why? Because they don’t work. They seem to work in the short term (or in our imagination), but in practice they are worse than useless.

We need to find another solution that actually works. One solution is to get rid of stuff that costs money that we don’t need (like the TV!).

Another is to transfer money into a separate account as soon as we get paid. Pay Yourself First!

I have not really used (or needed) a budget in the last five years or more, because I must also have the “frugal gene.” I find what helps is accountability (not of outcomes, but of choices). Just finding out how much we spent each month is enough to help me focus on controlling spending.

While the thought of not budgeting is really exciting, I think not having a budget would make me incredibly nervous. I like the idea, I’m just not sure I could follow through!

Ron,

You went on and on that a budget is important, but the only benefit you mentioned is it puts one “in touch” with their spending.

To me, not worth the effort. The idea of going hungry for a week because I ate lobster earlier in the month is ridiculous.

I live on 30% of my income without a budget.

I think budgets are good for those who are out of touch with their spending; like diets are good for those who are out of touch with their eating.

Strictly following a budget, though, comes with the danger that the budget is seen as something to be spent rather than as a limit of what can be spent, e.g. we’ve been eating oatmeal all month and now we still have $50 left in the food budget, so lets blow it on lobster.

I’ve definitely observed this with dieting with people stuffing themselves even though they feel like they had enough because according to their diet they much eat X calories per day.

The confines of a blog comment make it impossible to list all the benfits that will accrue to someone who uses a monthly budget to track income and expenses and use it as a resource to plan their spending and saving.

A budget is also the only resource that will allow you to examine your expenditures to look for weaknesses such as mentioned by Mo. And if you don’t use a budget, then how are you to determine if one of your spending line items might present an opportunity?

To think that a budget is license to spend any money remaining in a budget line item at the end of the month does not reflect an understanding of the tool.

And a budget is just one tool in the personal fiancial management toolbox; some others are financial goals and a spending diary. And most people don’t understand the role of those tools or how to use them, either.

It has been said that if the only tool you have is a hammer then everything looks like a nail. Acquiring and learning to use a few more basic tools will only serve to expand your thinking.

And to think that a budget in itself is the only resource you need to prudently manage your finances is like thinking that the only exercise you need is walking.

And, again, to make my point another way: Would you invest in a business when the owner could not present you a budget to examine?

Budgets are everywhere…

http://earlyretirementextreme.com/early-retirement-extremes-budget.html

Budgets are a necessity. Now, it doesn’t have to be formal. You can indeed keep it free flowing if that is your usual approach, but you do need to know if you will have enough money to last the entire month. Credit card charges are not free money. I suggest that it is beneficial for one to try writing a budget and tracking your expenses for at least 3 months, then decide if you need to do anything if you are short. Try it, you will like it.

Oh, I forgot to say that this works works for me because it is very difficult for me to spend money. There is almost a physical pain associated with it.

Here is one reason to compile a monthly budget.

My water bill increased by 15% or so last month.
I had heard that a rate increase would go into effect at some point in 2010, so I thought it had happened. Looking back over my household BUDGET, I noticed that the increase was gradual and monthly. Hummm.
Checking things out, looking for leaks, something left on, etc, I checked under the house to find a small lake! Hoping it wasn’t the main water line, I swam through the mud and looked at all the pipes and fittings. NADA.
To make a short story long, my plumber and Two Grand fixed the problem with a new line. 200 feet of the new blue PEX 1.5 inch pipe, a hand full of very expensive fittings, and a “ditch witch”. Two men and a truck and trailer and day and a half!!!
The budget did save me some bucks on lost water.

Jacob , I think what you do really is a form of budgeting. You know approximately how much you feel comfortable spending per year, how much you actually spend per year, and what you spend it on. That’s a budget. For instance, you are comfortable paying to live in a trailer, even though you could probably minimize your expenses further. Try owning a small patch of property in the middle of nowhere in Louisiana or Alabama (low property taxes.) You could live in a tent or makeshift shack and wash in the creek. But the trailer is in your “budget” because you know you have the money and you feel that it’s worth spending.
My method of budgeting is very similar to yours. Still, I know I don’t truly minimize my expenses. I could comfortably live in my car, park in student parking, and shower at my campus gym. I would even have access to a kitchen with free utilities in our honors building. But I just think it’s worth it to spend $200 a month to have my own bed to sleep in at night (yes, rent is crazy-cheap here if you know where to look). Because I can, and it’s worth it. That’s budgeting.

I don’t keep a budget but I do track all of my expenses. If spending gets a little too high in one category then I make a mental note to cut back the next month. Not exactly a budget but it works kinda like one.

Now that I’m getting married I think we might do a budget for a few months to figure out what our expenses should be.

Oh, how I love this post! Even in the poverty-stricken days of graduate school, we just had a general idea(l) of how much we spent in each category. At the end of every month, we had money left over, so we knew we were doing OK. Thirty years later, same thing.

Your comments are reminiscent of those of Amy Dacyzyn of Tightwad fame. She discusses how “rules” like “save 20%” encourage you to spend the rest.

I am so glad I don’t need a budget. When I look at the spreadsheets other people have or hear about their multiple savings accounts for multiple goals, my head starts to spin. It’s easier to be frugal than to have to keep track of everything.

@CC – Every place I’ve ever worked in (academia) had this kind of “budgeting” both in terms of money and computer time. Another rule was that we’d always get less than we asked for, hence, we’d always have to ask for more than we needed.

@Andy H, I’d strongly recommend a written budget in marriage, particularly if there is going to be any pooling of resources– it has helped me out a lot. The agreed upon written record requires proactive communication about your finances, and allows each person to have a reference so there isn’t any confusion.

My wife and I are both pretty frugal individuals. When we made our first budget together it became clear to me that we think about money very differently, even though our actions are similar. Kinda neat actually.

Thanks so much for your blog Jacob. I also feel like a stranger in a strange land.

I have a quasi-budget. Aside from what I know will be fixed expenses, it allows me to get a read in on the fluctuations of not so fixed expenses. Some might consider their electric bill a “fixed expense,” but mine is not. So, I set an amount that seems reasonable, based on the past 12 months usage, take into account unusual events, (i.e., my sister comes to visit me during a cold snap and wants the heat cranked up to “HADES”, thus double the electric bill) and it normally works out.

I also sweep everything left in the “accounts” at the end of the month into my brokerage account and start all over again. I am currently on track with saving 18.5% in a pretax accounts (6.5% are automagically taken to fund that increasing rare beast, the matched pension) and I am required to commit 1% to a “self-funded” 401K. I bumped that up to take advantage of a lower tax base so I could get my Traditional IRA’s out of hostage to future taxes.

51.45% of after tax income goes to saving vehicles of some sort, and I suspect I can make this go lower. My housing costs (I rent) are high, however, I like where I live. I mean, I REALLY like where I live. I have some time to look around and see if something closer to where I work is more suitable for me because I would much rather walk or bike, than drive. While my current distance isn’t so bad, the roads I have to take are NOT walker or bike friendly. They are scenic though.

Thanks again for the blog. It truly does turn the standard ideas on their heads. I knew my grandparents had the right idea.

Regards,
Dee

I have never really “budgeted” until I began to red this blog. My expenses were 40% of my salary and i saved the rest. But then upon reading here, I realized I could move those nbr to 75% savings without too much pain and retire in 2.5 more years.

I still dont exactly budget. I just make sure 75% hits savings each month at the beiginning of the month, and then live on the rest. As a result, I did cut my grocery bill in half, stopped buying alcohol and stopped shopping as a recreation. I still have enough.

I started writing down every outflow of money as suggested by the book “Your money or your life”. I also monetized all my incomes & benefits. Found out I was making considerably more then I had thought ( yeah). I like writing down my spending. I feel more in control. I have read where people keep food diarys to count calories, lose weight faster then those that dont. My mantra at work for pressure “two more years. two more years”

Work this program!

Hi, My parents are my money models. They went from very little to great wealth without a formal budget (unlike me). Like you, they watched what they spent, saved FIRST and lived in accord with their values. Best regards, Barb

There are as many ways to budget as there are individuals, and it’s naive to dismiss them all with sweeping statements like “If there are $20 left in the food account at the end of the period, the $20 is spent on eating out.” That is certainly now how my budget works, so you can’t ascribe that flawed thinking to the budget itself.

Everyone has a budget; many people just don’t know what it is.

I disagree with the notion that budgets are restrictive, or inflexible or compelling to spend more then needed, I have a different view. Budgets in other three words to me are RESPONSIBILITY, CLARITY, and SMART.

RESPONSIBILITY – As in put down in writing how you plan to manage your income. It always comes with more weight when we put it in writing, not to mention all kind of things that become obvious once we see the writing on the wall.

CLARITY – No matter how good our intentions are, without a budget we are in the dark relying more on hoping and good wishing or memory rather then having the numbers clearly in front of us.

SMART – With a budget we first make sure that the numbers add up before we go spend money, but that is only the beginning, we can play with our budget numbers to smartly contemplate different scenarios and changing situations, change the numbers once to suit our good strategy, and forget about the in-depth process to get there while simply looking at the numbers for guidance on allowable limits.

And in addition to all this, budgets are only upper limit specs, nothing prevents us from spending less then what we are budgeted for, then take the left over and save it, but it sure helps to now what our upper limit is. Even if we went beyond it, it helps to know what the limit is, because we also know by how much we went over budget, take this amount and make up for it next month.

The secret is to be a happy budgeter, truly a challenge if your budgeting tools are awful. I found Out Of The Dark (OOTD) budgeting free web app, and it changed my life about budgeting.