I talk about personal finance all the time, but I admit it. I don’t follow the cardinal rule of personal finance: budgeting.
I don’t consistently force myself to spend the same amount in the same categories every month. I don’t tell myself I can spend up to $X in restaurants this month, and no more. But, as I mentioned before, I do track all of my expenses through Mint and Personal Capital, and I do save aggressively each month.
Instead of fretting over my average dollar amounts going towards whichever categories, my version of “budgeting” is purely goal-based. Right now, that goal is saving at least $2,313 a month – just about 50% of my income.
So here are the rules:
1. Pay yourself first. Instead of saving whatever is left over at the end of the month, I spend whatever is left over after my savings goals are met. I earmark half of my paycheck for my savings goals, and whatever’s left over, I consider monthly spending cash.
2. Monthly spending cash is like energy: it can’t be created nor destroyed. Roll with me on this one – if I want to increase spending in one area, I have to decrease spending in another. Yes, I supplement my income with side gigs, so technically the income can be created. And sure, I could theoretically get laid off again. It’s not a perfect metaphor, but it’s a good mindset to keep! Speaking of side gigs…
3. Side Gig/Irregular Income is for emergency spending only. If I babysit, earn a bit of cash from this blog, or get a bonus at work, it all goes straight to savings. I’m lucky to have a full-time position that more than covers my monthly expenses, and if side gig income isn’t absolutely necessary to support that spending, it can help me get to retirement that much sooner.
4. Deferred spending is still spending. Unpopular opinion time: I don’t consider it “savings” if it’s going towards a vacation or luxury thing (new kitchen counters, high-end shoes?). If I’m “saving” for a vacation, a car repair, etc., it’s being “budgeted” in Mint as an expense – even if I’m not technically spending that money just yet. I just make sure the budget is set to roll over month to month, so that money I’m not spending can really add up. Think of it this way: if I’m marking $150/month for travel, it’ll say I have a $450 reverse-deficit in three months, and I can book that flight!
5. Tossing extra money at debt is still spending. Credit cards, mortgage payments, student loans – it’s a good idea to pay that puppy down (and get rid of Private Mortgage Insurance fast), but it’s still money I’m not going to see again. Even though it’s a smart finance move to toss that money and reduce debt, it counts as spending.
To help me keep my “spending budget” in mind, I use Mint’s handy Goals tab. I make sure that half of my monthly income is earmarked for savings, so that the Budget tab only lets me play with the other half throughout the month. As for those savings goals, I have mine divided into three buckets:
1. (Early) Retirement (includes my IRA/401K accounts)
Now that that’s all set, my Budgets tab only lets me play with the half of my income that isn’t claimed by Goals. The other $2,313 of my paycheck can go towards whatever I want, regardless of what I put it towards last month. Obviously I’m going to pay my mortgage, insurance, and bills. But the rest can be tailored to my needs now.
$150 in restaurants because I’m feeling unbelievably fancy? Sure thing, but my grocery spending will have to stay a bit lower.
Want to save up for my New Orleans trip? I can set aside an extra $100 in the vacation budget, and lower other categories to make up for it.
Have to get a nice gift for friends, or want to make a donation to Ocean Conservancy? Cool, but cool it on the whiskey and skincare for a second. Jeez.
Suddenly hit by a small surprise expense, but not big enough to break out that emergency fund? Cool, I’ll consider it a use for my Fuck You Fund and tone down the spending in other categories to make up for it.
I won’t change my savings goals. I consider that portion of my paycheck basically untouchable. And outside of a desperate need, so is that side hustle income. So, no, I’m not technically sticking to a budget, but I am still hitting my savings goals every month, and don’t feel restricted when I want to buy something out of the norm.
My favorite free financial tool I use is M1 Finance. I've previously written about M1's free trades, automatic rebalancing, and easy-to-use interface, but it really does make investing accessible and easy. If you're not already investing in some way, or if you're looking for a tool that makes it easy to manage, I recommend trying it out.
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