Monday, August 18, 2008

I don't budget - I spend the leftovers

Budgeting is a great tool that helps you get more out of your money.  If you are struggling with debt, can't ever seem to save any money, or wonder where all your money goes, you need to budget.  I confess that I don't budget, but I do generally keep track of income and expenses and have a good feel for where my money goes.  My wife and I have no debt other than mortgage debt and we aggressively save for the future.  That being said, I am certain that we would be better off if we did budget.  However, we spend most of our time living abroad and deal with expenses in different currencies.  I have not found an easy and convenient way to keep track of everything.  If you know of one, please tell me about it.

Over the next few days, I will share a few different methods for how to track your expenses.  Today, I would like to share with you how my wife and I are able to met our financial goals without budgeting and tracking our money.

A large part of managing your money properly comes down to establishing your values and  priorities and using your money in a way that reflects those values and priorities.  We have set a high priority on a comfortable retirement.  Therefore, we have set up automatic funding for all of our retirement accounts.  We value education.  Therefore we have set up a college fund for our daughter that is automatically funded every month from our checking account.  Time together as a family is a priority for us.  Therefore, we make certain to set aside enough money to take vacations together.  We believe that it is important to give generously to causes that we care about.  Therefore, we plan out our giving for the the year ahead of time.

All of our high priority goals are automatically funded.  As soon as that money comes into our checking account, it is automatically whisked away.  We know generally how much our bills will be every month.  So, what ever is leftover is what we spend.  Doing this almost invariably means that we spend less then others in our same income bracket.  However, because we know that we are using our money for the things that matter most to us, it makes it much easier (most of the time) to cut back in some areas where our friends and colleagues indulge.

One of the reasons that it works is because we have always been good at not spending beyond what we earn.  If you have a problem with debt, this might not be the best method for you.  This plan isn't perfect, but it works for us. 

No comments: