Have you attempted to create a financial plan to control your spending in the past only to end up feeling overwhelmed and discouraged? You’re certainly not the only one. The notion of budgeting often conjures images of someone meticulously entering figures into a spreadsheet, striving for numerical accuracy. Just thinking about the pressure to manage your finances the ‘correct’ way may already cause stress in your mind.
While managing your finances is crucial, sometimes it can be overwhelming to maintain a personal budget. Personal finance tools or budgeting software might not align well with your financial needs.
Rather than stressing over adhering to a conventional budget, explore innovative saving and spending methods. Discovering a personalized approach can help keep your finances organized without leaving you feeling frazzled.
The downsides of traditional budgeting
A majority of financial advisors suggest that creating a budget is vital for enhancing one’s economic health. After all, how can you pinpoint areas for improvement without understanding your cash flow each month?
This perspective holds weight, as tracking your expenditures for a few months can reveal areas for growth; however, for some individuals, adhering to a traditional budget might hinder their progress towards financial aspirations.
If you find yourself struggling with traditional budgeting, you may not gain much from it if you experience:
Inconsistent monthly earnings
Individuals with fluctuating incomes commonly find it challenging to implement a conventional budget due to unpredictable monthly earnings. Lacking clarity on what you’ll earn makes it tough to budget for anything other than essential expenses.
Advisors often recommend that those with unpredictable incomes plan for their lowest income month. However, when you earn more in a given month, you may find yourself uncertain about how to handle the extra funds, potentially leading you to spend it before you’ve devised a plan.
A limiting financial mindset
For those with a restrictive view of money, traditional budgeting can exacerbate negative feelings. Many personal budgets necessitate that you pinpoint and restrict your spending, which may benefit some individuals striving to save or cover significant expenditures.
Budgeting applications and software frequently send alerts to inform you about your spending habits throughout the month, advising you to cut back if you’re overspending in a certain category.
However, if you grew up in a household plagued by financial issues, where overspending was considered a moral failing punishable by shame, focusing intensely on a standard budget might lead to excessive spending or an inability to allow any spending at all, even on essentials.
If you find yourself with persistent mental barriers surrounding money, you may want to seek assistance from a certified financial therapist or other mental health professionals who can help you address your money-related experiences.
Effective money management without strict budgeting
At its essence, a budget serves as a blueprint for handling your finances. Controlling your spending doesn’t have to be an intricate or time-consuming effort. If traditional budgeting proves to be frustrating, consider trying one of these alternative methods.
Essentials-based budget
If you have varying income but stable expenses, or if you generally anticipate your monthly earnings, consider basing your financial plan on your essential needs while using any excess as you see fit.
Start by calculating your fundamental necessities—including rent or mortgage, groceries, utilities, and minimum debt obligations. Remember to allocate some money, even a small amount, for your emergency fund and retirement savings.
Designate part of your paycheck specifically to cover these essential bills. Any funds remaining can be spent freely. Alternatively, you might want to allocate additional money towards debt repayment or your emergency fund.
Once you’ve accounted for your essentials, any leftover funds can be spent guilt-free. This essentials-based budget allows you to decide whether to invest extra funds for the future or indulge in a small treat like a new pair of shoes.
Establish goals and save adequately to achieve them
Prioritizing saving can be another method to manage your finances without rigid budgeting. Instead of solely focusing on cutting expenses, concentrate on building your savings for the future—worry about the rest (within reason) later.
After covering your predefined monthly expenses, determine how much money you would like to set aside for various savings goals, such as retirement, emergencies, and vacations. When you receive your paycheck, transfer that amount into your savings accounts and utilize the remaining money as you wish.
As long as you meet your monthly savings target while also covering your essential expenses, you shouldn’t stress about enjoying brunch with friends.
Be cautious about saving more than you can comfortably handle. Ambitious savings goals are admirable, but dipping into your savings to cover basics undermines the purpose. Depending on your savings plan, frequent withdrawals might incur fees. Experiment to find the right balance for you.
Utilize a spending plan for money management
A spending plan is a more adaptable and tailored approach to budgeting. With traditional budgeting, you prepare for every conceivable expense throughout the month, assigning a purpose to every dollar. If an unexpected cost or treat isn’t anticipated in the budget, you might find yourself unable to spend money on it without skimming from other categories.
Conversely, spending plans allow you the flexibility to decide how to allocate your funds over the month, enabling you to make informed choices based on your unique situation. Instead of being limiting, a spending plan emphasizes adaptability, allowing you to manage your funds more effectively as expenses arise.
When crafting your spending plan, categorize every expense into one of three groups:
Group #1 consists of necessary expenses, such as food, housing, utilities, and debt payments. Your fixed costs are typically reliable, so you’ll have a good sense of how much money to set aside.
The widely recognized 50/30/20 guideline suggests that spending in this category should be no more than 50% of your take-home income. However, this may not be a realistic figure for your situation, so strive to get as close as you can.
Group #2 is allotted for retirement savings and other financial goals. Experts recommend directing 10-15% of your income to this category. If you can’t meet that target yet, don’t lose hope. It’s crucial to save something for retirement rather than getting discouraged and avoiding saving altogether.
Group #3 includes discretionary spending for the month—often referred to as “wants” within budgeting. This encompasses everything from an impromptu dinner out with friends to an unplanned trip to the hardware store for a minor repair.
If your remaining funds aren’t sufficient to support spending from group #3, you may need to reduce your discretionary expenses, seek out cuts in the first two groups, increase your earnings, or potentially all three.
The essence of effective money management
Conventional budgeting can prove too confining and labor-intensive for many busy individuals to uphold consistently. However, this shouldn’t serve as a reason to neglect managing your finances. You simply don’t have to conform to a strict plan just because that’s the conventional method.
Experiment to uncover the most effective strategy for managing your funds, and then adapt it to suit your specific situation. There are no incorrect methods as long as you establish a system that aligns with your needs.
