(Silence. Crickets chirping.)
Yeah, I thought so.
One of the most overplayed pieces of financial advice is “make a budget.” I’m sure there are some of you – the diligent and detail-oriented personalities – who jive with this idea. You dig data. You love crunching numbers. Good for you. Budgeting is a great tactic for people who can stick with it.
The problem is, most of us don’t stick with it.
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 restless “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 later posts, I’ll go over how to develop habits, turning these “shoulds” into reality. It’s possible to wake up earlier, to wear sunscreen, to eat more veggies. I’m calling it the Habit Project, and it’s going to be a focus on Afford Anything in the coming weeks.
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:
Take 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 plan (spend 40 percent, save the other 60).
(If you’re carrying high-interest credit card debt, hit 50/50 or 40/60. Credit card debt is an emergency, and it demands drastic action. You life will suck for awhile, and that’s okay, because there’s a brilliant light at the end of the tunnel.)
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.
Thanks to Flickr user Hugo Quintero for today’s photo.