What are some alternatives to budgeting to keep expenses under control…without sticking to a strict plan? Read on to find the 5 most popular options, and be on top of your finances no matter what!
Budgeting is the number one advice you’ll find probably everywhere when it comes to managing your money wisely, achieving your financial goals, – be it getting out of debt or saving up for your house downpayment – or merely being in a more stable financial situation.
Having a budget seems to be the key element between being in control of your money or letting it slip away, and there are plenty of benefits to budgeting.
However, not everyone feels comfortable doing a budget, has the constancy to stick to it and revise it monthly, or it may even be that being that restricted has a countereffect and you end up splurging out of frustration. If that’s you, don’t lose hope just yet.
There are several alternatives to budgeting that can help you keep track of your finances with more flexibility, or without having to sit for a few hours on a monthly basis to go over your numbers.
In this post, we’ll be checking out some of the best substitutes for traditional budgeting to give you an idea of what they look like, and which of the options might be just perfect for you. Let’s check out these different budgeting approaches!
Track Your Expenses
While tracking your expenses goes hand in hand with having a budget, it’s not necessarily the case. Budgeting means you’ll be strictly following your planned expenses of the month, whereas tracking them means just that: you’ll be noting down every amount of money that you spend so you get a general idea of where your money is going and in what areas you need to cut back to reach your goals.
Being aware of where you spend your money and what percentage of your income goes toward each category will automatically help you to avoid overspending.
You don’t even need to sit down and go through your monthly expenses, especially if you note down your spending on an app like Mint or Wallet, that will show you exactly how much you spent on each category.
If your entertainment expenses are way higher than you think reasonable, eating up, for instance, 40% of your total income, you may want to reduce that to half the next month. Keep your goals in mind as you follow your spending from up close, and you’ll be able to achieve those financial goals without having to budget.
In case you need proof that merely tracking your expenses can help you stabilize your economy (and grow it!) take Chris Reining as an example. This self-made millionaire retired at age 39 with more than a million dollars in his account, and he did this without ever having a budget.
How? According to an interview he gave to CNBC, he simply kept track of his income, expenses, and investments. How would you like to be the next Chris?
Spend as you wish…AFTER savings
If tracking feels like too much for you, there’s a simpler alternative you can use to still build your savings account without worrying about how much you spent on signature coffees last week. You first need to set a monthly savings goal, one that’s realistic and that you can actually afford, and as soon as you get paid you’re gonna put that specific amount aside: those are your savings.
If you don’t know where to start, you can begin by setting aside 20% of your income, and adjust in the following months if you see that you can actually save more or need to reduce the amount.
After making your contribution to the savings fund, spend the rest of the money as you see fit: pay the bills, go out to dinner, order extra caramel on your macchiato…the options are endless, and you won’t feel restricted by a budget nor will you have to write down every expense. This is one of the best alternative budgeting methods to avoid sitting down every month to go over your expenses.
A little warning, though. Unless your income is really high and you can afford anything and everything you want, you should at least be aware of how much you’re spending and how much you’ve got left for the rest of the month, so you don’t run out of money two weeks before your next payment and end up using the sacred money of your savings fund.
An extra tip to avoid overspending and using the money you meant to save, keep it in a separate account from your day-to-day expenses one and pretend it doesn’t exist at all. If you’re saving for retirement, you can actually contribute to an IRA or 401(k) account and benefit from the interest it will earn.
Alright, this technique may seem from another era (and it probably is!) but it’s still useful for our purpose. Basically, you’ll allocate specific amounts of your income to different categories, like food, rent, utility bills, and entertainment, and place that money into separate envelopes.
Write the category on the outside of the envelope and voilá! You’ll have your monthly budget all figured out. In each category, you can spend as much as you want until your envelope is empty, but no more than that.
Of course, this is a very helpful practice if you get paid in cash or always use actual bills for your shopping. If you don’t, you could still separate your income into imaginary envelopes, writing down the amount you’re going to spend on each category, and only spend until you reach that limit. It does involve a little tracking if you’re not using cash, as you have to make sure you stay on track and don’t overspend.
As to figuring out how much money you should assign to each category, you’ll probably have to go over your typical expenses and check your expenditure for the previous months to set a realistic limit, but don’t worry, you only have to do this once!
Make significant cuts
This point might sound a bit harsh and it may be even harder to put into practice, but it’s a one-time sacrifice that will leave you with a lot of extra money to spend, so you don’t have to worry about budgeting to make ends meet.
Basically, you need to get rid of your big expenses so you can enjoy some more money for your monthly payments and shopping sprees while still having some leftovers to redirect to your savings account. Big expenses can be anything from your car, the apartment that you rent (not suggesting you go homeless! Just look around for cheaper alternatives or consider moving to the suburbs), your cable, or multiple streaming services.
First, start by checking your credit card reports and expenses of the past few months (you’ll only do this once, don’t start hyperventilating!) Once you can pinpoint which areas cost you the most, you’ll know where you have to make adjustments.
While it may be difficult to get rid of your expensive habits, focus on the amount of extra income you’ll have to finally save for your dream trip or get enough money for a house downpayment.
Your goal may even be to never have to worry about how much you’re spending when you dine out or go shopping with your friends, and you could also accomplish that if you have a larger budget every month.
Do a one time budget
While the last alternative to budgeting actually implies that you create a budget, you’ll only have to do it on a yearly basis, so it’s not that bad.
First write down your goals and plans for the long term, mid-term and short term and calculate how much you should save each month to accomplish them. You can use your expenses records for the previous months to have a reference.
Once you know how much money you’ll need every month to pay your bills and other needs, decide how much of your income will go to paying those and how much to your savings account for the longer-term financial goals.
You’ll then have a specific amount of money to use throughout the month, and while you don’t have to track it or budget it, bear in mind that having some sort of awareness over how much you spend will help you avoid running out of money in the middle of the month.
Extra tip: It could be useful to have two separate accounts for your monthly expenses and long-term savings, so you don’t run the risk of using your savings fund.
As you can see, there are simpler alternatives to budgeting that you can implement to manage your finances better without having to go over your expenses on a monthly basis. You can also combine strategies to develop a method that works for your lifestyle and make your financial affairs all the more enjoyable.