(Silence. Crickets chirping.)
Yeah, I thought so.
One of the most overplayed pieces of financial advice is “make a budget.”
There are a small handful of nerds who 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 finance enthusiast, and even I think that budgeting is arduous, so I can only imagine how “normal” people must feel.
We all know that we “should” budget. That doesn’t change anything.
We “should” drive the speed limit. We “should” wear sunscreen every time we leave the house. We “should” floss our teeth daily.
Let’s get real.
In this post, I’m going to suggest an alternative for the Afford Anything readers who embrace the reality that they’ll never stick to a budget. It’s my anti-budget, and it’s simple:
- Pull Your Savings off the Top.
- Relax about the Rest.
See how easy that is?
There’s no need to classify whether your money is going towards groceries, electricity or cat food.
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.
When I say “save,” I’m referring to any activity that boosts your net worth, including:
- Crushing debt
- Creating investments
- Literal savings (in the bank)
I use “save” as a shorthand for improving your financial health — regardless of whether that means stockpiling cash or aggressively wiping out your credit card debt.
Q: Where should I put my savings?
A: Here’s a step-by-step plan:
- Get your full employer match on retirement contributions (if applicable).
- Save a small emergency fund (two weeks pay).
- Pay off high-interest debt (interest rate of 8 percent or more).
- Grow your emergency fund to represent 3-6 months of expenses.
- Contribute 15 percent into retirement funds, like your 401k, IRA or HSA.
- Save at least 5 percent of your income for long-term goals like making a downpayment on a house or traveling through South America.
- Pay off low-interest debt (like your mortgage or a low-interest student loan).
At this point, you’re saving 20 percent of your income, which is divided into 15 percent for retirement and 5 percent for long-term goals.
If you want to be a rockstar, boost your savings up to 25, 30, 40 or even 50 percent of your income.
Use this money to build investments, buy rental properties and create businesses.
Q: “I can’t save! I don’t earn enough to save anything!”
A: You’re telling me that you earn $3,021 per month and your expenses come to exactly $3,021 per month?
Somehow, I find that doubtful.
If you feel like you can’t save anymore, try this:
Save an extra one percent.
If you save nothing at the moment, start by saving one percent this month. If you currently save 5 percent of your income, save 6 percent this month.
To calculate one percent, knock two zeros off your paycheck:
- If you bring home $2,000/mo, save $20
- If you bring home $4,000/mo, save $40
- If you bring home $8,000/mo, save $80
The following month, save one percent more. And the next month, save one percent more again.
After a year, you’ll be saving an extra 12 percent of your income.
Need a community? Check out the One Percent Challenge Facebook Group.
And remember — if traditional budgeting doesn’t work for you, try the anti-budget. It’s a simple two-step process:
1) Pull your savings off the top
2) Relax about the rest
Make Work Optional
Get free updates on building wealth and living to the fullest. Zero spam.