No Budget, No Problem: Achieving Financial Success without a Budget

When it comes to budgeting, there are two main camps on this matter — either you swear by it, or you believe budgeting doesn’t work. For example, Nickel coined the term reverse budgeting and pretty much said he saves as aggressively as he could and let the chips fall where they may. On the other end, you have someone that takes budgeting very seriously like Paidtwice.

gas budget
Photo by Gracey via MorgeFile

I don’t budget religiously — in fact, I rarely do it. However, I do keep track of my net worth monthly to make sure I am financially healthy, and I also review my long-term financial goals at least once a year. That said, I do occasionally use budgeting as part of my portfolio of tools to help me keep my finances in order. In general, I think budgeting is just one of many money management tools, and there are other things that you need to do to make it effective.

Make Financial Goals the Core of Your Budget

Budgeting without a goal is a sure way to fail. I wrote extensively about my financial goals. For example:

Another key factor is the difference between

  • Budgeting around your financial goals, versus
  • Trying to fit your financial goals into your budget

The first will lead to financial success and the second inevitably to failure. Recall The Big Rocks of Life story, my financial goals are the big rocks and they will not fit into the jar if I put in all the sand and gravels first.

Save First

Since most financial goals involve saving and accumulating money, putting money aside must be the first priority. This is one way to budget around your financial goals. This is essentially what Nickel is doing. The concept of putting money toward financial goals first is so important that the U.S. government forces us to give them part of our paychecks (taxes withholding) before we even get the money. Imagine if our government only collect taxes once per year, how many Americans do you think could come up with 20-30% of their gross income when the taxes are due.

Here are some of the things that I do to make saving money the core of my financial plan:

  • Automatically deduct $650 per paycheck to fund my 401k
  • Automatically deposit $425 into my son’s 529 college savings plan each month

One area I would like to improve is to automatically contribute to our Roth IRA accounts; unfortunately, it’s not feasible yet. But I am sure, I’ll find a way soon.

Automate Payment of Key Expenses

Just like saving money, it’s important to take care of key expenses before it even becomes a budgetary concern. The concept is simple: it’s easier to pay in small pieces than in one big chunk (sounds familiar?).

Here are some of the things I do to automate my expense payments:

  • Automatically deduct $750 from each paycheck to pay my home mortgage
  • Automatically pays for car, home, and umbrella insurances monthly
  • Automatically pays natural gas and electricity bills monthly

Budgeting for Non-Budgeters

Since most of my critical financial processes are automated, I don’t fret the little financial expenses. This doesn’t mean that I go crazy and spend what I have left either, because I have very little left after all the savings and expenses above. Occasionally, I will use budgeting in conjunction with other tools to help tune up my finances.

Here are some articles I have written about using budgeting as a tool:

Please share your philosophy, and any tips & tricks about budgeting.

About the Author

By , on Feb 18, 2008
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (12 Comments)

  1. Suresh says:

    I would first calculate how much I will spend that month and then how much I can save. Maybe doing some second job to boost the income

  2. Jonathan says:

    Budgeting is never easy but i am one of those people who think it works really well for me. I think the key to budgeting is sticking with your plans once you start. I think that the biggest benefit of budgeting is that it makes you STOP and THINK before you spend, which is never a bad thing.

    Sorry I don’t have the ability to leave a trackback so have included a link to an article i wrote on budgeting entitled “Aspects of Budgeting”

  3. Mark says:

    Hmm, I recently realized after 2 years of tracking my income and expenses using Microsoft Money that I can live with a budget because I can see where my money is going, whether it is to pay bills or put away or throw away.

    I have my program set up to where I can see how much will be coming in over the next 90 days and what I know I do have to pay and simply tell myself, that’s it, if I can’t afford it, then forget about it because I know I will afford it later when I make my millions. And who knows, maybe by then, I won’t even care for it anymore.

    The best part is seeing what I throw my money away on and learn what I can do better in the future.

  4. I used to “let the chips fall where they may,” but now I budget in a pretty strict way (or at least I try). It’s a much better feeling because you can forecast how much you will save and try to meet any goals you may have.

  5. Erik says:

    I try to live by the guideline principle of budgeting so that it doesn’t run my life. My wife is a little more strict about it. We make sure that there is always that “blow” money that we can do whatever we want with so it doesn’t feel like the budget sucks all of the fun out of our lives.

  6. Patrick says:

    I was planning a very similar article actually. My wife and I don’t really budget. We plan our major expense, and we talk about large purchases, but we don’t plan where each dollar is spent. I think we could do a little better, but we are happy.

  7. Pinyo says:

    @Menial — Then find a way to make some extra money and save that. A second job may be?

    @Randall – That’s my approach too.

    @Lisa – My wife and I are not as different, but I’d like to get my wife more involved with our finances also.

    @Mr Credit Card – Good approach :-)

    @FourPillars – Sounds like you are doing well with debt payments. Being frugal definitely helps.

  8. FourPillars says:

    I’m with you Pinyo – we are not big spenders, we are paying down our debt, saving a lot so having a budget really wouldn’t do much for us.

  9. My approach is to track down how much I spend a month on various items. Then break them down on essential items. I then figure how much I need to save and automatically put that aside. My major monthly expenses are also automatically paid via credit cards, which are then paid in full.

    So I do an initial “budget” to know where I am. After that, I follow Nickel’s approach, have automatic savings and payments for essential items and let the rest take care of themselves without incurring any credit card debt.

  10. Lisa says:

    I like to think of myself as a “budgeter extraordinaire”. I would go insane without a detailed budget. I, of course, drive my spouse insane with it! We are at opposite ends of the spectrumabout the whole thing.

    Isn’t that the way it always goes?! ;-)

    Lisa

  11. Menial Work says:

    If I saved first I wouldn’t have money left for food.

  12. Randall says:

    I take a middle of the road approach, My budget (which I just blogged about today, coincidentally) is more a tracking and motivation tool than a true budget.

    I like Nickel’s approach, and that’s pretty much how I end up doing the finances too. Automation baby!! Great stuff!

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