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.
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.
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
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.
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:
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.
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:
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.