Should You Have an Anti-Budget?

October 16, 2014

A friend of mine recently sent me this blog post called “How the Anti-Budget Can Save Your Wallet.” The basic premise is that a traditional budget isn’t realistic for most people because they just don’t stick to it and it isn’t even necessary to have one. Instead, it suggests simply setting aside your savings first (at least 20% of your income) and just spending the rest without having to categorize each of your expenses.

In some ways, this is very good advice. It’s basically the concept of paying yourself first. By prioritizing saving, you make sure that you aren’t left with with nothing to save at the end of the month.

There are practical difficulties though. If we spend the rest freely, we might not have enough to pay our bills so I would modify it a bit. Make sure you also have money set aside to pay any bills for the month like your rent or mortgage, student loan, car loan, insurance premiums, utilities, and cell phone. It could also be a good idea to set aside money for things you know you’ll need to spend on like gas and groceries.

That leaves you with the remainder of your income for all your remaining discretionary expenses. The trick is to make sure you stick to this. The strictest method is to give yourself this amount in actual physical cash each week or month. This prevents you from spending more than this “allowance” and people tend to spend less with paper than they do with plastic. The downsides are that you may not be comfortable carrying around that much cash and you lose the benefits of putting expenses on a credit card (convenience, ability to make online purchases, possible rewards, etc.)

Another method is to have your remaining amount for discretionary expenses automatically transferred to a separate checking account. (I would suggest one of these rewards checking accounts to minimize fees and maximize your interest.) This allows you to use your debit card or take cash withdrawals. If you prefer to use a credit card, you can simply have the credit card payments come from your discretionary account but you have to make sure that your credit card bills don’t overdraw your account. Just like the pure cash method, you’re prevented from spending more than what’s in the account but it gives you more flexibility. The only downside is the additional complexity of having a second checking account.

Either way, you don’t need to track every latte to have a “budget.” The “anti-budget” probably simplifies things too much though. To see if your money management system is “just right,” ask yourself if it allows you to hit your savings goals, pay your bills on time, and know exactly how much you have leftover to spend on the fun stuff.