Ditch Budgeting and Conduct a Spending Review Instead

Receipts are helpful for a spending review if you use cash

Ah the B word. Let’s be real for a second – almost nobody actually loves to budget. If they do, they’re some sort of freak. Budgeting can be time-consuming (though it only takes an hour or so a month) and it can be mentally exhausting.

If you’re not already on a good track, budgeting can be life-changing. Telling your dollars where to go is extremely important.

After you’ve got the hang of things, though, budgeting becomes somewhat less important.

That’s why Kristin and I don’t really, truly budget.

Don’t Sweat the Small Stuff

Instead of actually sitting down each month and breaking out all of our expenses – something I’d expect to do in a traditional budgeting exercise – we just estimate the big things.

Then, every week or so I pore over what we’ve spent money on to make sure it’s in-line with what we’re expecting.

It’s not a budget in the strictest sense, but it serves the purpose of still keeping us on track. Things will come up unexpectedly. But we’re living below our means to the point that if we spend $300 in a month on groceries and we’d only planned on spending $250, I’m not sweating the fact that we “blew our budget”.

The Anti-Budget

One way we accomplish this is by limiting the money we have to spend. It is a behavioral change that has taken some time to get used to, but it’s served us well for a while now.

Each pay check we know we’ll have some automatic deductions – like our 401(k)‘s. We also have some monthly expenses we know we’ll have to incur, like our mortgage, that are pretty stable.

Everything else we spend relatively freely on. In the mood for a coffee on the weekend? No big deal, regardless of if we got coffee last week, too.

Paula Pant refers to this as the anti-budget: take what you want to save off the top, and spend the rest however you want. When you’re out of money, you’re out of money.

Getting down to the nitty-gritty of line-item expenses works for some folks, but it’s not ideal for us.

Conduct a Spending Review Instead of Creating a Budget

While we may not budget every month, we do watch what we spend. Periodically I conduct spending reviews.

Sometimes these will point out some potential issues and areas we can cut costs. For example, looking at some of our recurring expenses pointed out two areas we could probably trim:

  1. Cable TV. Based on how much we actually consumed, could we get this for cheaper? (It turns out yes, we could)
  2. Cell phones. Are there alternatives to the Verizon plan we’re on, based on our data usage and phone preferences? What’s the cost to switch, and what would it save each month?

In the case of cable, we’ve switched to SlingTV which is less expensive. We still get all the channels we’re used to watching, so this one was pretty painless.

For our cell phones, we’ll wait until I’m no longer paying for mine each month. After that time, since I don’t use much cell data, I’m going to switch to Google Fi. Kristin uses an insane amount of data and the cheapest option for her will likely be to stay at Verizon on an unlimited plan.

Spending reviews can point out other behaviors, too. Going out to eat a lot? It may not hurt, but it might mean foregoing other uses for that money.

If that’s not how you want to spend your money – if it doesn’t align to your values – a spending review will help you identify those.

Budgets Have Their Purpose

On the front-end, budgets serve a good purpose. They help you identify where you WANT your money to go.

Once you get into a routine, however, personal finance is actually pretty boring day-to-day and month-to-month. We find that assessing how money is actually being spent, on a more frequent basis, is more effective at controlling our expenses.

There’s a reason JD Roth created a web site called Get Rich Slowly. Finance is a slow game.

Setting up good systems – like a budget – can help you plan, but typically things don’t change significantly in our life month-to-month.

Of course, 2017 has been a bit of an exception to this with our wedding and a house. 2018, however, is shaping up to be pretty stable and predictable.

We’ll start off 2018 with a budget – with a decision on how we WANT our money to be allocated – and review it quarterly or twice a year. This will make sure it aligns with our goals.

Then we’ll conduct a spending review every other week to ensure we’re on track. Reviewing it more frequently lets us pull back in some areas if needed.

Do What Works For You

I know a few other people in my life who also don’t actually budget. At some point your income easily supports your lifestyle.

As long as lifestyle inflation doesn’t creep in, conducting period spending reviews is a great way to manage your money. Reviewing your budget and reassessing your goals on a periodic basis is very helpful.

But if we’re doing well financially, we’d rather not stress over creating a new budget each month.

For us, a spending review does the job just fine. At the end of the day you should do what works well for you.

Question:

Do you conduct spending reviews AND budget, or just do one or the other? Or neither??

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16 Comments

  1. I like the anti-budget. This is essentially what we’ve been doing for probably 10 years now. With my paycheck, for instance, over 75% my gross pay is gone before it hits our checking account (that 75% covers taxes, health insurance, 401k, ESPP, and an automatic transfer to continue building our emergency and new car funds). Then the rest (plus Karen’s take-home) is used to pay the mortgage and pay off the credit cards (in full) each month.

    Taking some money out directly for the emergency and new car funds (auto-pilot, like you’ve talked about before) was a big help in squirreling away money for future needs. When I suddenly needed a new car this past January I knew where the money was to pay for it without a loan. For us, not having to think about saving for those events, and not even seeing the money, was a big help. We still track all of our expenses and categorize them (long live MS Money!), but it’s more to review where it’s going vs. following any specific plan.

  2. I like that you recognize that budgeting tactics can change over time. I think many people who need a strict budget to get things under control, can ease up once they are on a solid footing!

  3. During our accumulation phase, Mrs. G and I were definitely anti-budget people. The easiest thing to do is to automate your saving and investing and spend whatever’s left over in your check. Now that we’re in the decumulation phase, we keep a tight record of our spending. And every month we review our expense log to make sure nothing’s out of whack. Great post, Dave. A lot of sound advice here. Cheers.

    1. Yeah I’m sure that we’ll follow things a LOT more closely and be more diligent on actually setting monthly budgets once we are in that phase. Have a ways to go for it though – so for now, it’s all about the accumulation!

  4. I love to budget!!! Freak alert! If I have a low spending month then I’m happy. It’s like a arm’s race with myself. I can’t wait until our expenses are so low, selling on eBay part time could cover it all….sexyyyy!

    I’m too tame for the anti budget but the idea is pretty sweet.

    1. Hahahah why does this not surprise me? That’s awesome 🙂

      And yeah having low expenses to get everything covered by part time gigs would be sweet. Once our house is paid off I’ll probably step back to part-time and then ease into retirement. Feels like a good way to get an idea of it, even if it’s a short-lived thing (like 6 months or a year).

  5. I agree with you here. I do not like to over think budgeting. Once my money is taken out of my paycheck/side money and invested I do not care where the rest goes. I want to enjoy life along the way!

  6. I never had a budget, not once. I never even balanced my checkbook back in the days (when we had those). And I got to FI at 43.

    My method was simply ‘mentally roughing it’. I knew what I made each month, and of course know my big expenses (rent/mortgage etc). I would just mentally register any other expenses that were kinda large each month. And if I was getting too close to my income, I’d turn the dial back on beer or whatever else.

    So my spending always came way under my income, but the exact amount was a mystery. Then I would just throw the extra in my investments. Rinse and repeat this for a good decade plus and ba-boom. there you are 🙂

  7. I have a love-hate relationship with our budget. I love my spreadsheets and I try to set spending limits, but really the main thing is limiting spending. It’s true: if you give yourself the room to spend (i.e., budget) you’re likely going to fill that bucket.
    We’ve also cut the cord and said buh bye to cable. Netflix is our sole vice. The phone thing got a lot cheaper with our switch to Ting. $42 a month for two lines is not shabby.

    1. I think the love-hate is typical 🙂

      I’ve heard a lot about Ting but haven’t really looked into it much. May have to do that, but since Kristin’s a super heavy data user it might make sense only for me. At that point I’m wondering how it’d compare to Google Fi…hmmm, I’ll have to check it out!

  8. Great article Dave! This is exactly what I do. Budgeting is tedious and boring. I can’t imagine how one could stick to an actual budget. I think that we are creatures of short attention spans. If you set yourself a limit – just one, then you’ll probably achieve it. If you break it into a thousand categories…then good luck!

    I find that the toughest part of this adjusting for inflation. If you get good at this type of spending limit you tend to get grandfathered into whatever year you started. So what actually happens is you experience lifestyle deflation because well your $300 grocery budget should now really be $375 but you’re trading in wonder bread for store brand to stay in line. 🙂

    1. Thanks HM! Tedious and boring is right – unless you’re Lily, apparently haha.

      For inflation, that’s why I like to look at things every couple of months and reassess. Sometimes prices will go up, other areas you can maybe cut things (or not). Bread is one of those ‘or not’ categories, I’m a carboholic.

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