Standard advice from most financial planners is that it’s essential to create a budget to track all expenses.  It’s the best way to figure out where your money is going and to rein in any unnecessary spending.

5 Reasons to budget

  1. It helps you gain control of your finances.
  2. It helps you to achieve your goals by spending on the things you love the most.
  3. Documenting your purchases allows you to keep tabs on where your money is going and help you identify leaks.
  4. It helps you avoid debt by making the necessary adjustments to stop spending beyond your means.
  5. What you measure, you can improve.

Having a plan can improve your relationships because you and your family know where you are going financially.

I don’t budget

I’ll come clean right now and admit that I don’t use a budget.

Oh, I’ve tried.  I’ve used Microsoft Money and then Quicken.  For several weeks I recorded every expense from my mortgage payment to every cup of coffee and gas fill up.

Related: How to build a better personal budget

I soon resented it.  It was tedious to record all the minutia of my day-to-day spending.  I started to procrastinate and became weeks, and even months, behind in my recording.  Then, because I couldn’t remember where the money went, I just plugged in the numbers to meet my monthly targets.  After a few months I gave up.

My “budgeting” method

This is now my budgeting strategy.

I know how much my fixed expenses are, and this amount goes into my chequing account.  At the beginning of each year I calculate my variable expenses – usually annual payments such as insurance and taxes – and divide the total into 12 monthly payments.  This amount goes into savings account.  I don’t use a separate account for each item.

I don’t spend much on discretionary expenses like clothing or eating out, but when I do it goes on my credit card which is paid monthly.  I have my own acceptable monthly limit that is well under the card’s limit.  I know what I can afford.

I keep a high interest savings account topped up to manage unexpected expenses, such as a new tire when my husband ran over a nail, an extra property tax payment because my lawyer made an error, and a spur of the moment weekend excursion.

Related: Why it’s hard to avoid buying “stuff”

I actually am very financially minded.  I have a decent retirement account, I pay all my bills on time and I don’t spend frivolously.

I’m doing just fine without a formal budget, thank you very much.

Final thoughts

For some people the mere mention of the “B” work brings on resistance.  Many don’t look at their budget frequently enough to shape their behaviour.

You can build your spending around musts – rent or mortgage payment, utilities, and food; shoulds – savings and investments; and wants – vacations, gifts and entertaining; and still meet your goals without being chained to a budget and having to account for every penny.

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11 Comments

  1. Dan @ Our Big Fat Wallet on December 9, 2014 at 1:23 pm

    My budget is pretty simple – an excel spreadsheet showing a breakdown of monthly income and expenses. Thats all most people need. I don’t actually get into each individual item bought during the month as that would take forever, but as long as the final numbers come in close to budget I am happy with that. Basically – don’t sweat the small stuff

  2. Brian So on December 9, 2014 at 2:25 pm

    My thoughts on budgeting is that it is a 3-step process: recording, analyzing and changing. It’s great if you use software to record your spending, and kudos to those who have the persistence to do it day after day. But if all you’re spending your energy on is recording and not the other 2 steps, then why budget? To see progress in your cash flow requires you to analyze what you can cut back on, and actually going through with the change until you reach a new norm.

  3. Sandi on December 10, 2014 at 6:11 am

    But Marie, you *do* have a budget, you just happen to have one with an annual frequency and your categories are essentially “fixed expenses”, “credit card purchases”, and “everything else”.

    I hear this “I don’t budget” thing a lot from pf bloggers and I don’t buy it. You plan your spending, therefore you budget, whether it looks like tracking and categorizing every.single.transaction, or what you do.

    • Boomer on December 10, 2014 at 11:48 am

      Well, Sandi, I guess I do have an informal budget in that I don’t indiscriminately spend whatever comes into my account. I consider a “formal” budget as one that establishes and tracks all your spending in every category as advocated in many financial books, and these can be beneficial for some.

      I used to use a detailed Excell spreadsheet for a while, but most of my categories were blank month-to-month, or I’d enter something like $3.95 in “home maint.” for my husband’s Home Depot purchase. “How much was that part again?” “I don’t remember.” It was too much trouble for not much reward.

      I’ll admit I used to be a bit more detailed earlier on when my children lived at home, but now my expenses are few and don’t vary much. I’m not a shopper, nor do I eat out much. My husband is used to me saying “You can’t buy that right now.”

      From other comments its seems broad categories are more their style too.

  4. aB on December 10, 2014 at 9:35 am

    I started with a budget, but it was a general framework. For the most part, variable spending is the only thing that needs an eye on it and that budget gave me a number that my credit card needs to come in under (everything goes on the credit card, and it gets paid off).

    Now when I get my credit card statement, I write down how much I spent (organized into the cash back tiers: gas, groceries, reoccurring, restaurant, other). So 2 times a month (2 credit cards).

    If the credit cards come close to the number, need to be more careful next month.

  5. Boomer on December 10, 2014 at 11:30 am

    @Dan @Brian @ aB

    Thanks for sharing.

  6. Michael James on December 11, 2014 at 9:21 am

    Few people really follow a budget and no doubt many would benefit if they did. In my case a short story is illuminating. After I’d had my first set of golf clubs for 5 years, my buddies kidded me about needing new ones. So I mulled it over. After losing two from the set and breaking another over 15 years of mulling, I finally bought a new set. Does someone like me really need to budget?

    • Boomer on December 11, 2014 at 11:18 am

      Hi Michael: You seem to be an “under-buyer” like me 🙂

      The way I see it, many people decide to finally get a handle on their finances, especially with the New Year coming up. They’re all gung-ho about tracking their spending and creating budget categories – then they lose interest, think they’ve failed and give up completely.

      My take is, as long as you have your regular expenses covered as well as savings, you can have much broader categories for discretionary spending and it’s easier to manage.

  7. tom on December 11, 2014 at 4:22 pm

    people have to budget when they retire too. Too many just get money into the account and spend it. When one retires, no need to put into savings! but need to make sure does not exceed incomming
    what I will be doing is to separate automatic fix expenses, an estimate misc then a separate budget amount for travel and one for house improvements.
    that way we feel balanced and not sacrificing one area for another

  8. Sean Cooper, Financial Journalist on December 12, 2014 at 6:46 pm

    While I think it’s important to have a budget, you don’t need to track every penny you spend (unless you’re constantly spending more than you make). It’s still a good idea to say on top of credit card statements and utilities bills to make sure you’re not being ripped off.

  9. Judy on December 14, 2014 at 7:08 am

    I use a program called “You Need a Budget” to plan my spending every month. I only budget the money I already have. I get paid once a month, so at the beginning of every month I budget the prior month’s paycheque. Like you, I split big bills into 12, and put 1/12 of my Christmas and birthday budgets away every month. I also set aside money for car & home repairs, household items, vacations, etc every month.

    I take $100 cash out every month to pay for small items, and I don’t track those.

    Using this program has helped me immensely. I paid off a $61K heloc this year and I am now totally debt free. The program comes with a phone app so you can enter your spending as it happens, but I usually just sit down on Sunday mornings and enter the week’s transactions. I actually enjoy it, and it takes only a half hour or less.

    Everyone has to find what works for them. As long as you are living below your means, and saving for the future, it’s all good.

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