I don’t follow a budget. That might seem like an unremarkable confession—until I tell you that I’m a certified financial planner. I’m supposed to love budgets.
I’ll concede that everyone should be intimately familiar with their own spending patterns, myself included. Avoidance is a sure path to disaster. But I think budgets can be too detailed, too rigid.
In the traditional sense, a budget is a set of parameters on how much someone should spend every month on groceries, entertainment and other categories so that they don’t exceed their income and can save what is left. For people prone to impulse spending or who have a lifestyle that’s bigger than their paycheck, this framework is vital. In fact, a traditional budget is a great starting point for anyone learning to manage money.
Sometime in my mid-20s, budgeting became an extraneous step. At the time I was beginning to see the importance of saving for retirement, however far off it may be, and I was finding myself with more disposable income as I climbed my way beyond an entry-level salary. I decided then that my biggest financial goals are to build wealth and live well in the meantime—no easy feat while residing in the heart of Los Angeles, one of the most expensive cities in the world.
To build wealth I need to save or invest a portion of my income. It doesn’t matter how much I specifically spend on eating out at restaurants or buying books or traveling—what matters is that I’m consistently spending a lot less than I earn.
So rather than setting spending limits on specific categories such as food delivery (takeout Thai just makes life so much easier!), I flip budgeting on its head and give priority to savings. That’s right—I care more about the money I’m not spending than the money I am spending.
In 2016, I read “The Automatic Millionaire,” the bestseller from financial writer David Bach. He swears by the so-called pay yourself first plan: You don’t need to do anything more to achieve financial stability, he says, than automatically transfer money off the top of your paycheck into accounts that fund high-priority goals, such as retirement, before you pay bills and buy things.
As much as Bach’s approach made obvious sense, it felt revolutionary too. Could it really be that simple? After roughly seven years of paying myself first, I’ve found it’s more effective than any other budgeting strategy.
My savings rate isn’t based on the cash I have left at the end of the month; I choose it up front and adapt my lifestyle accordingly. Basically I do the math to figure out how much I should save monthly to meet my target number for a particular goal, such as my emergency fund or a ski vacation. I’m usually funding several goals, so I add those numbers and subtract the total, along with my fixed expenses—namely, rent and insurance—from my monthly income. The remainder can be spent freely.
How, and how much, I “pay” myself has shifted over years. Right now it looks like an automatic monthly transfer from my checking account into a high-yield savings account where I keep my emergency fund as well as money I’m saving for a down payment on a house and estimated tax payments. Another automatic transfer goes into a Roth IRA where I invest for retirement.
I love this strategy in part because I start every month off with a financial win when my automatic transfers go through. And it might seem counterintuitive, but I feel more mindful, more in tune with my spending patterns and what purchases make me feel good (or not) than if I had specific limits and tracking mechanisms in place.
My system runs mostly on autopilot, but I still do routine maintenance. About every other month, I check in to ensure two things: that my income as a freelancer hasn’t shifted too much from my original projections and that I’m maximizing my cash. If I see that I didn’t spend a large chunk of my “spending” money for a given month, I’ll consider upping my savings rate, or putting the cash toward a big purchase that I hadn’t previously planned for (a new iPhone, perhaps?)
And if my income does come in low one month, I’ll dip into my emergency fund and/or pause the automatic transfers to free up some cash, and then reassess. That’s part of the beauty of paying yourself first—there’s a built-in buffer.
Almost two years ago I quit my full-time job without another one lined up. I hoped to build a freelance writing career but figured it would take time to replace my previous income. Meanwhile, I was able to rely on a savings cushion that only existed because I decided to start paying myself years earlier. There’s no way I would have left that job—and entered a prosperous and fulfilling new chapter of my career—without it.
More on budgeting—or not
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