A budget can be a very good thing. It helps you track your expenses, find out areas where money is mysteriously vanishing, plan for the future, and to reduce waste. There are, in fact, times I highly recommend you make and plan a budget on a monthly basis. But if I might play the role of the financial heretic here, I believe there are times when you don’t need to make a budget!
Of course, such sounds heretical because we are used to personal financial advice from the Dave Ramsey’s of the world who dispense one-size-fits-all approaches to personal finance. Such gurus have a lot of good advice, but they forget that, above all, personal finance is PERSONAL finance.
Not everyone is in the same financial situation, and everyone has different short and long term financial goals in mind. A detailed monthly budget may be absolutely necessary for some people. But for others, maybe completely optional.
Let’s look at when you do need a budget, and when you don’t need a budget.
When You Need A Budget
- If you are living paycheck to paycheck. If you are first starting out in your career, and/or don’t make a lot of money, I highly recommend you make a budget. You are new to the world of personal finance, and you have no idea how much it truly takes to live. The only way you’ll ever be able to navigate the complexities of life in your situation is if you budget. Otherwise, suddenly, every little financial “surprise” becomes a crisis. You must get control over your personal finances by budgeting so that you can start saving towards the future.
- If you have a lot of consumer debt. If you are trying to get out of debt, and paying off things like credit cards, auto loans, and medical debts, you probably need a budget. Whether you are attempting to get out of debt using the “debt snowball” or “avalanche” methods of getting out of debt, you’ll never get off the hamster wheel unless you are carefully tracking your spending so that you can maximize paying down your bills. Otherwise, you risk only paying the minimum monthly amounts, and never getting out of debt.
- If you are highly dependent on variable income sources, such as tips, overtime pay, bonuses, or commissions, you need a budget. Since your income likely has very large peaks and valleys throughout the year, and is highly dependent on income that greatly fluctuates from month to month, budgeting is a must. The only way you’ll navigate your bumpy financial life is if you wear a seat belt. In this case, your budget will be that seat belt.
- If you have some aggressive savings goal in mind for a big ticket purchase in the near future, you need a budget. Are you having a baby in the next few months? Need to buy a car in the next year or so? Is the roof on your house starting to look bad? In cases like these, you might need to temporarily and aggressively start diverting money you normally spend in one category and putting it towards these.
- If you lack financial self-control, you definitely need a budget. You know you. Are you naturally inclined to spend, or save? Does the Amazon Prime delivery driver know the name of your dog? If you are a little out of control, and are prone to frivolously spend and regularly engage in impulse shopping, a budget is the only way you’ll probably control your spending. Otherwise, you’ll lie to yourself about where you are financially, and you’ll likely find yourself regularly living beyond your means instead of below your means.
When You Don’t Need A Budget
- If you are no longer living paycheck to paycheck, and have 3-6 months of monthly expenses stashed away in emergency savings, you probably don’t need to make a budget. If this is you, you aren’t living on the edge. You have a pretty good financial cushion, and can easily absorb most of life’s random happenings.
- If you are regularly living below your means, and your monthly income regularly outstrips your average monthly expenses, you probably don’t need to make a budget. And why would you? You clearly have self-control, and make more money than is needed to pay for your rent/mortgage, utilities, groceries, etc. These expenses tend to be rather static from month to month, even if they fluctuate a little bit from one season to another.
- If you are operating from the principle of “paying yourself first,” then you probably don’t need a budget. If you’ve easily taken care of your short and long term savings goals, have automated those, and are on goal to meet your retirement goals, then you are at the point financially where your financial life is on auto-pilot. Sure, a budget could be useful tool to crank out a few extra dollars every now and then. But, at this point, you don’t need to sweat the small stuff, and it won’t matter if you have a $5 a day Starbucks habit.
- If you have software that tracks your expenses, you probably don’t need to make a monthly budget. There are a ton of free to cheap apps you can install on your phone capable of tracking your expenses. Most major banks have a tool on their website or app that will automatically classify most of your monthly expenses. Unless you are in a bad situation financially, there’s not a need to make a line by line budget that tracks in detail everything you are spending your money on. This financial technology, while not always 100% accurate, can give you a pretty good “at a glance” view of your monthly spending habits. If you are in a good place financially, this is probably all you need to make sure you haven’t gone off the rails financially. It should take you no more than 30 seconds to look this up on a monthly basis.