The personal finance space is full with people giving advice on how to budget your money. It’s a topic that can be extremely important, but can also be a huge turn off to a ton of people. I, myself, have a very hard time sticking to a budget. And I can give all the excuses as to why a budget doesn’t work for me, but when it comes down to it I am a spender at heart. I have tried other ways of budgeting but none of them work for me. I used to prefer to use only cash because I thought placing that kind of restriction would make me not spend as much. I tried zero based budgeting through an Excel sheet I made where every dollar has a purpose. When that didn’t work for me, I tried using You Need a Budget (YNAB), a software that helps you complete zero based budgeting. I had soon come to realize that I am not one that works well with a budget. But throughout this past year I have done a really good job on reeling in my spending and cutting expenses where I see fit. But that doesn’t mean I won’t spend money on things that I deem important. I choose to spend money on vacations and travel but I use travel rewards to mitigate some of my costs without sacrificing the trip. I still choose to eat out a few times a week or go out with my friends on the weekend. I’m still living my best life all the while saving money; no thanks to a budget. The process I have found that works best for me to allow me to spend money while still saving for my future is the anti-budget.
And the anti-budget is just that, not a budget. The whole idea of the anti-budget is to pay yourself first and then spend the money left over as you see fit. That doesn’t mean you spend every single penny left over after you pay yourself first. It just means you don’t have to sweat the little purchases such as Starbucks, eating out, drinks with friends, or that last minute birthday gift you forgot. The one caveat with the anti-budget is knowing how much all your bills are in total for a typical month. In order to have the most freedom with the anti-budget it will take 3-6 months of expense tracking to get the best idea of what a typical month looks like in terms of spending. However, once you have an idea of how much you spend, the anti-budget gives to a ton of flexibility with your spending. While you are tracking your expenses, you will be spending like normal, but you will become more cognizant of where your money goes each month.
So how do you pay yourself first? It’s very easy, gives plenty of options and tons of flexibility. It all comes down to one simple question: How much are you willing to save? That number is completely up to you! If you want to fast track your way to becoming financially independent, then 50% is your benchmark. But saving that much can be an extremely daunting task. Start with whatever you feel comfortable with at the beginning even if it means saving 1% of oyur take home pay and vowing to get better each month then at the end of the year you will be saving 12%, which is awesome!
The great thing about paying yourself first is that there are so many ways to do that. One of the easiest ways to pay yourself first is by contributing to retirement accounts through your employer, if available. Traditionally this will be into a 401k or 403b, and for 2020 the maximum amount a person can contribute is $19,500. If you were to make the goal for 2020 to max out your account, you would be able to save roughly $1625 a month! I know that maxing out your retirement account may not be possible for everyone but I highly, highly recommend contributing at least to get the employer match contribution, if your employer does that. The employer match is essentially free money that your company gives you for retirement.
Another way you can pay yourself first is by getting an emergency fund in place. An emergency fund is there for just that: emergencies. Typically, an emergency fund should be able to cover 3-6 months of living expenses (I prefer closer to 6 months just for peace of mind). This is why it is so important to know how much a month costs so a fully funded emergency fund can be implemented. One non-traditional way you can pay yourself first is by paying down any sort of debt you may have, that could be student loans, credit card debt, car loan or even mortgage. Paying down any debt is a way of paying yourself because you are using that money to positively impact your net worth.
Once I started implementing the anti-budget my spending hasn’t become inflated. I have set processes up to get the money into the proper accounts for paying myself first. Knowing how much a typical month is for me based on my expense tracking for my monthly bills, I then can spend freely on things important to me without having to stress over the little things. Check back in February where, I’ll give an in depth look at how the anti-budget has worked for me!
Steven | Rx for FIRE