Yahoo Finance How to Use an Anti-Budget
Are you the type of person who diligently tracks every expense and knows exactly where all your dollars go? If so, congratulations! You're a rare specimen.
If you're a regular, everyday person, on the other hand, line-itemizing your budget just isn't realistic. Sure, it's possible to keep a detailed budget, but doing so will consume a massive amount of your time, energy and effort. The entire process will feel like a tough uphill battle, and you hold a high likelihood of giving up.
Just as most people abandon their diets, most people also abandon their budgets. So let's get rid of the budgeting notion altogether. To give yourself the best chance of financial success, work with your personal nature, rather than against it.
If you aren't likely to stick with a detailed budget, then try this alternative: the anti-budget.
The premise of the anti-budget is simple: Pull your savings off the top first, then go wild with the rest. When I say "go wild," I mean you can spend this money freely, without needing to track where it's going. It doesn't matter whether your groceries come to $173.58 or $192.49. You no longer need such detailed information.
As long as you're pulling your savings off the top first, you can spend the remainder guilt-free. You won't need to doubt yourself or question every purchase you make.
The anti-budget is pragmatic and goal-oriented. The purpose of a budget is to make sure we're adequately saving. You want to make sure you're setting aside enough money to pay off debt or save for the important things in life. Pulling your savings from the top first allows you to make this a reality.
To be clear, a detailed budget is helpful for those that can stick with it. But if that level of scrutiny isn't your cup of tea, you can achieve the same result by pulling your savings off the top first.
To get started, split your savings into three buckets: retirement, debt payoff and cash savings.
Retirement: Set up automatic payroll contributions to your retirement accounts, so the money never even reaches your paycheck.
Debt: Establish additional debt payment (above-and-beyond the minimum due) to automatically draft from your checking account every payday. These include credit cards, car loans and even excess mortgage payments.
Savings: Open a savings account at a different bank, so you don't see your savings balance when you log into your primary accounts. Establish an automatic transfer from your checking to your savings account every payday.
Congratulations -- you've just pulled your savings from the top. The rest of your money is yours to spend. Now, allocate the money that's left over towards fixed and essential bills, such as rent or mortgage, utilities, phone, insurance premiums, gas and groceries.
Pay these bills first. Once you're done, anything that's left over is yours to spend without concern. You don't need to worry about whether you spent $92.87 or $114.02 on restaurant dining this month. You don't need to concern yourself with the fact that those spur-of-the-moment concert tickets or that impulse pair of shoes weren't included in your budget.
You can simply spend anything that's left over, because you know your savings has been paid first.
In my household, we use the anti-budget to make sure we're saving at least 50 percent of our income (after taxes). Our approach is simple. We save 100 percent of the income that's generated by whichever partner is the higher earner.
Since "who makes more" has changed a few times in the last couple of years (depending on promotions and self-employment growths and slowdowns), we respond by adjusting our strategy monthly: We save the income brought in by whomever earned more in the past month.
This approach guarantees we'll be saving more than 50 percent of our income. It also puts us in the mindset of being a single-income couple, which means that if we decide to actually become a one-income couple in the future, the transition won't be such a shock. We already make most of our buying decisions -- including choices about big-ticket items like mortgages and cars -- from the budget and perspective of a single-income couple.
You don't need to leap to 50 percent right away -- that's admittedly a large goal. Start by setting aside just one additional percent more than you currently save. If you normally save 5 percent of your income, start the anti-budget by putting aside 6 percent. If you usually save 20 percent of your income, save 21 percent.
Each month, adjust the anti-budget so that you're saving one extra percent, as compared to the prior month. You'll be able to save an additional 12 percent over the span of a year by making these incremental moves.
The anti-budget is a simple way to make sure you're saving as much as you want to every month. If tracking your expenses is getting you down, give this a shot.
Paula Pant is the founder of Afford Anything, a website that helps you build wealth and maximize life. Afford Anything is an online movement against tired old financial advice that says you should skip lattes and chain yourself to a desk for 40 years. Paula Pant launched the site after she quit her 9-to-5 job, traveled to 32 countries and became a successful entrepreneur and real estate investor.
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