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I have a confession of sorts – I hate budgeting. Well, I shouldn’t say that. I do enjoy planning and developing a budget; I’m just terrible at following them.
So I quit budgets.
It really is freeing to give up tracking every expenditure. I spend a lot less time now updating spreadsheets and Mint and other tracking sites.
We do still use the beautiful free apps from Personal Capital to track things like net worth, including our cash balance and current debts.
My Old Budget Method
For the last 15 years or so I have toyed with the concepts of a budget, but did a terrible job sticking to them.
It finally occurred to me why I failed so miserably. I hated the act of updating expenses. I hated getting cash from the ATM and thinking of how to split that withdrawal across four categories.
Envelope systems are nice, but I never seemed to have the right envelope with me when I need to stop by the grocery store.
And who likes to walk inside and pay with cash at the gas station?
But I used to dutifully sit down at the beginning of each month and “plan” our budget. I tracked things diligently for about the first week, but invariably I would slip.
My New Budget Method
My new budgeting method is really quite simple; by design.
It’s based on percentages: “15/15/70”
The first 15%
We save 15% of our income for retirement and other long-term goals. Long term goals might look like:
- Down payment on a new house
- Vacation home or investment real estate
The first 6% of savings goes towards matching funds in a 401k plan at work.
Then we invest another 4% in a Roth IRA.
Then remaining 5% goes towards on the long-term goals identified above.
The next 15%
The next 15% of our income is saved towards short-term needs in sinking funds in Capital One 360 savings accounts.
- Vacation fund
- Christmas fund
- Semi annual insurance premiums
- Car repairs
- Household repairs
These saving contributions are automatically transferred from our primary checking account to the sinking funds each paycheck.
The final 70%
The final 70% is the real beauty of this plan. I don’t track any of it…closely.
Out of this 70% we pay a number of “fixed” expenses each month like our mortgage and utilities.
This final 70% also covers categories such as entertainment, food, medical and prescription costs, pet meds and dog food and clothing. Everything required to run our household.
Any excess left over at the end of the month gets transferred back to long-term savings and is reflected in our Personal Capital reports.
I know it seems counter-intuitive to read a post discouraging budgeting on a personal finance blog. I don’t meant to totally bash the concept of budgeting.
But I do intend to encourage you to ask yourself this, “What benefits do you get from tracking every cup of coffee, every meal out and every Under Armour t-shirt you pick up on sale for your kids? Is it really worth the effort?
In my case I decided it was not. I’d much rather take some savings off the top and live within the remaining amount.