Budgeting isn’t for everyone. For many it conjures up images of spreadsheets, feelings of denial and connotations of failed discipline. Some try to budget and end up feeling frustrated, the same way they do with a New Year’s Resolution that doesn’t make it past February 1.
Others give it a go but find it doesn’t work for their lifestyle and give up. Their finances drift along, maybe they get into credit card debt or become house poor (their mortgage takes up too much of their income), as money gets forced down the list of priorities because it is connected with negative emotions. They think it’s easier and more fun to think of other things, as a cold hard look at their finances can be about as much fun as a root canal from a dentist who forgot their glasses.
I get that. I’ve never been a traditional “budgeter”. Cue the gasps from my readers as they say “but Zach, you’re a personal finance geek. How on earth do you not obsess over categories and spending?” But we’re all different and have different approaches to how we manage our money.
Here are three budgeting systems, which may appeal to those averse to getting their finances in order:
The daily spending budget
This is the system I use. First I figure out how much I will spend over the course of the month on regular bills such as my phone, car payments and rent, and I deduct that from my monthly income. Then I deduct how much I want to save each month, treating it like any other cost. That leaves me with an amount of “spending money” I can use for groceries, eating out, entertainment, clothes, etcetera.
I then break that monthly spend into a daily spending amount, which I can use for whatever I want. I make a game of it, so if I’m under for the day, I get a little jolt of happiness. I also give myself more to spend on the weekends than on weekdays, because during the week, I’m at work and have less time to entertain myself. With my income, this works out as Dh150 to spend each weekday, and Dh270 for each day of the weekend. If I go over from time to time, it’s OK, because I know that most days I’m under target.
I like this system because it’s easy to see if I am doing well and it gives me flexibility in case there are unexpected expenses. When a surprise bill pops up, I just cut back for a few days by eating in or choosing low-cost leisure activities such as reading. Using this system, I’ve managed to save 60 per cent of my income over the last 12 months.
The traditional budget
Break apart your monthly spending into categories, then decide how much you want to spend in each category. Some people like to put cash into envelopes for each category; once they use all the cash in a particular envelope, they know they can’t spend any more in that category for the rest of the month. This is ideal for people who are very organised, know themselves well and have set amounts they spend each month.
Figure out how much you want to save each month and automatically take that out when you get paid and put it in your savings account or investments. Enjoy the rest. I definitely recommend an emergency fund for this method, because if something unexpected happens, you’ll need reserves to avoid tapping into your savings or investments. This system works very well if you don’t want to track your spending but still want to save. You will get used to not having the money that you’re saving as long as you move it into your savings pot the moment your salary drops into your account. Some bank accounts and finance apps will automate this for you, so check to see if you can set this up.
One of these budgeting systems should work for you but everyone is different, so if one doesn’t work, give another a shot. This is critical if you want to take charge of your finances and not be stressed about money all the time.