Budget, so that you don’t have to

A budget is a great tool. But like all great tools, it's possible to do without it. To do that, you go beyond budgeting …

A little over two years ago, we took Dave Ramsey's Financial Peace University at our church.

In taking the course, our lack of budgeting convicted us. Since then, we've drafted a budget every month, using a very low-tech but very effective pen-and-paper budgeting system.

The purpose of budgeting is to give every dollar some purpose, whether it's essential spending like housing and food, discretionary spending like streaming services or eating out, or saving, investing, and giving.

Without a plan as to where the money is going, money just goes to any old place. We know this from experience. For a number of years, we were steadily spending a bit more than we brought in because we weren't planning or monitoring our spending.

Our monthly budget has mostly fixed that. We're way more careful with how much we spend when we go to Costco — it used to get out of hand — as well as how much we eat out.

Transcending the budget

A budget is a fantastic tool, for sure.

We have no plans to stop doing ours. It's too useful.

It's quite possible to outgrow the need for a budget, though.

This past fall, I was chatting with a (very successful) blogger at FinCon. I've known him for nearly 15 years, and during this one particular chat, he was kind enough to buy my breakfast. (He also got me turned on to salmon and lox bagels, which are awesome.)

We were chatting about money nerd stuff and I asked him about what budgeting tool he was using.

“Oh, I don't have to budget anymore,” he told me.

I was a little surprised by this, but not too surprised. Overall, I knew this was exciting, and a great position to be in.

A position of strength rather than fear

Not needing to budget embodies a high level of overall control and comfort with money and cash flow.

It's quite a different statement than thinking that you don't need to budget. This kind of statement comes out of fear or ignorance rather than strength and knowledge. People making this kind of statement need budgets the most.

What characteristics do people who don't need to budget exhibit? I can see four important characteristics.

They know their spending habits well

The place where we saw the most benefit in doing the budget was in characterizing our spending. For years, we didn't really have much idea of how much we were spending on food and eating out (which was our biggest excessive expense).

By putting a number to that category of spending, we watched it more carefully.

Now, when we shop, we have a better feeling for what kind of shopping trip is “within budget.”

People who don't need to budget know what a typical week or typical month of spending looks like. They also know a typical April spending, or typical December spending, or a typical spending amount on vacation.

Do they know exactly? No, but they know enough of a range that they don't go off the rails.

They are content with their spending

Another component is that they have a level of contentedness with their spending level.

Their level of spending satisfies their important wants. They do the Ramit Sethi I Will Teach You To Be Rich exercise of recognizing what's important to them — what brings them the most joy — and prioritizing spending on that at the expense of the stuff that's not important.

This kind of spending is self-regulating and capped, more or less, because the spending provides abundance.

Lifestyle creep is minimal, or at least very controlled.

Their income and wealth easily support the spending

Even if you know your spending level well, and are content with it, that's not quite enough.

People who don't need to budget have the means to support their spending level easily, with lots of room to spare.

For a number of years, we were content with our spending level. The issue was that it was a bit higher than what we were bringing in. Not a lot, but over time we realized the need to cut back a bit. (Our income wouldn't have needed to be much higher. Close, but not quite.)

We brought in budgeting and that fixed the shortfall of our income. But we still need to be careful.

For people who don't need to budget, they're already careful enough that there's little danger of spending more than they earn.

They monitor the big picture

A budget is a month-to-month spending plan. It's very helpful in keeping on track, but it does involve tracking and scrutinizing individual expenses.

For people who don't need to budget, it's enough to check in once in a while to verify that things are still on track.

This might be logging into Personal Capital once a month or so to look at the big picture like net worth and net cash flow. (Check and see what I like best!)

So whereas someone with a budget manages their money, someone who doesn't need a budget directs it. It's more sophisticated than management, and can be much less hands-on.

Budget, so that you don't have to (at some point)

I'd love to get to the point where we don't have to have the budget anymore. But it will be at the point where (a) we're comfortable with our spending, and (b) our income easily supports that level of spending.

One way to get to where you don't need to budget is by … needing to budget, working the budget, and mastering the budgeting process so that you eventually transcend the entire process and work the month at a higher level.

That's the goal, but until then … some budget is better than no budget!

And there's no shame in budgeting.