(Silence. Crickets chirping.)
Yeah, I thought so.
One of the most overplayed pieces of financial advice is “make a budget.” I’m sure some of you – with diligent and detail-oriented personalities – jive with this idea. You dig data. You love crunching numbers.
Good for you. Budgeting is a great tactic for people who stick with it.
The problem is, most of us don’t stick with it.
And there’s good news: We don’t need to.
Budgeting is tedious and time-consuming. I’m a personal finance nerd, and even I think it’s arduous, so I can only imagine how “normal” people must feel.
We all know that we “should” budget. That doesn’t change anything. There are many things we “should” do. We “should” drive the speed limit. We “should” wear sunscreen every time we leave the house. We “should” floss our teeth daily.
In an upcoming post, I’ll discuss how to develop habits, turning these “shoulds” into reality. It’s possible to wake up earlier, to wear sunscreen, to eat more veggies.
(Update: Here’s the post on why willpower doesn’t work — and how to efficiently turn “should” into reality.)
But in this post, I’m going to suggest an alternative for the Afford Anything readers who embrace the reality that they’ll never actually make a budget. It’s my anti-budget, and it’s simple:
Pull Your Savings off the Top. Spend the Rest.
Boom! See how easy that is? There’s no need to classify whether your money is going towards groceries, electricity or cat food. Just skim off the amount of money that you want to save. Run wild with everything else.
You could call it the 80/20 Budget –- spend 80 percent, save 20 percent. That’s the smallest savings rate I’d recommend.
If you want a thicker cash cushion, try the 70/30 Budget –- spend 70 percent, save 30.
If you’re serious about ditching the rat race within the next decade, shoot for the 50/50 budget, or even the 40/60 escape route (spend 40 percent, save the other 60).
No matter what you call it, no matter what ratio you choose, the anti-budget is a simple two-step process: save off the top, spend the rest.
You don’t need to line-item your sunglasses, moisturizing cream, and that time you ran to the grocery store to pick up some broccoli. Let’s face it, you were never going to line-item those purchases, anyway. And you read financial blogs! If you’re not going to do it, who will?
No one. And that’s the point.
P.S. If you’re carrying high-interest credit card debt, hit the 50/50 or 40/60 mark immediately. Credit card debt is an emergency, and it demands drastic action.
I’ll be frank: Your life will suck for awhile, while you’re in the throes of credit-card-massacre. And that’s okay. Guess what sucks even more? Being trapped in an endless debt cycle. If you embrace a little “temporary suckiness” while you’re digging yourself out-of-debt, you’ll discover a brilliant light at the end of the tunnel, filled with freedom and peace-of-mind …
Thanks to Flickr user Hugo Quintero for today’s photo.