we've learned

on not following a budget

today we’ve got some big news to share: we do not follow a budget.

we know. we’re gonna lose our FI cards for saying it. it’s not just FI gospel, but personal finance gospel, that everyone needs a budget. but we’re doing just fine without one. we’ve shared that we are not naturally frugal, and for us, trying to follow a line-by-line budget feels both overly restrictive, and too much like a diet in which you’re tracking calories. it’s not sustainable. following a budget makes us constantly want to cheat, or wonder when the diet is over. (we swear we aren’t as rebellious as this makes us sound.)

instead, we focus on forming good habits and spending consciously, and think that with those good habits, we don’t need a budget. here’s why:

  • we have made ourselves price conscious over time on groceries and the very few drugstore and home items we buy (we mostly try to make things at home, less to save money, and more to avoid the unnecessary chemicals), and we only buy what is priced well, meaning that saving on groceries is a very solid habit at this point. we rarely succumb to impulse purchases, except sometimes at the farmers market.
  • we have trained ourselves over time not to buy stuff, and we don’t put ourselves in a position to be tempted. we avoid most stores, all malls, and most online shopping sites. so we’re not spending mindlessly on things we don’t need. the few things we do need we consider carefully, and do our research to find the best deal.
  • we don’t have kids, which sound pretty expensive to us. all those clothes they are constantly outgrowing, and school supplies. nevermind the toys and gifts for all the birthday parties they get invited to. we practically break into a sweat just thinking about what most parents spend on kids (though we know many FI bloggers have set the bar for limiting spending on kids, while teaching them the value of living with less stuff — which is awesome).
  • we have dogs, but they are small and don’t require much food or any grooming (short haired breeds are the way to go!).
  • we have no problem traveling like dirtbags, meaning we’re happy to camp or stay at a super cheap hotel. of course, we are making a killing on hotel points while we’re still working, so we don’t need to make a habit of motel 6 stays, but we for sure don’t require our hotels to have multiple stars. what we won’t do is eat fast food, but we make up for it by packing our own food and cooking on the road.
  • we’re already set on “stuff.” while our spending habits may make us sound like minimalists, we are for sure not. we have a house full of stuff. some of it we wouldn’t buy over again if we had the choice (like books — we love books, but weren’t as into the library as we are now for a lot of years), but most of it we use and get a lot of value out of. our key has been to buy for quality over quantity, and so very little of what we own will need replacing any time soon. we think it’s worth spending more if something will last longer, and that means that once you have everything you need, you can literally go years without buying a thing!
  • we work from home, and we’re not fashionable. translation: we don’t need a lot of work clothes, which can be a major source of spending. when we do buy clothes, we never buy what’s trendy, and only buy something we can wear for years. we also avoid anything that requires dry cleaning, which turns some work clothes purchases into major long-term investments.
  • we ask for splurgy things for gifts. we love lux experiences like massages, spa days and fine dining. there once was a time when we spent more than a few pennies on things like that which, even looking back, we still think is better than if we’d spent that money on stuff. but now, we make those occasions a lot more rare, and when it’s gift time, we’ve stopped asking for stuff, and instead ask for gift certificates for spas and restaurants. (to be honest, we’d prefer to quit exchanging gifts with family entirely, or just do charitable donations in each other’s names, but as long as the rest of the family still wants to exchange gifts, we’ll stick to this approach.)
  • we keep ourselves accountable by having our savings and investments come out of our accounts automatically. and those auto investments are a big percent of what we earn, so we are careful to make sure the money is always there on the draft date. we are borderline obsessed with growing our investments and getting to early retirement day as soon as we can, so we’re highly motivated not to do any spending that would jeopardize that.

bottom line: we’ve trained ourselves over time to be smart about spending, and to do it minimally, but without the strict confines of a budget. our line items would vary so much as to make a line-by-line budget useless anyway — some months we’d spend more on travel, some months on a nice meal, some months on stocking up on groceries when there’s a good sale or when we’re doing a lot of canning, and some months on home maintenance projects or car care. but, somehow, our total spending stays pretty consistent in spite of not budgeting and not sticking to line items. of course, we still do spending projections for our retirement based on our current and expected spending, and we might occasionally set limits for things like home improvement projects or vacations. but budgeting just ain’t our thing. and we’re huge believers that you have to find what works for you, not for everyone else.

what works for you? do you follow a strict budget? a loose budget? just practice conscious spending? or none of the above? please share!

Don't miss a thing! Sign up for the eNewsletter.

Subscribe to get extra content 3 or 4 times a year, with tons of behind-the-scenes info that never appears on the blog.

No spam ever. Unsubscribe any time. Powered by ConvertKit

33 replies »

  1. Good food for thought. We are budgeters, but maybe in truth we could better be described as savers. We have a set lump amount we can spend every week on everything – from groceries to gas to haircuts. We rarely spend the whole thing. We don’t distinguish how that weekly money can be spent. We are debt free and that gives us freedom to not plan at that level of detail.
    We are savers, though, in the sense that we have a budget where we allocate money towards major expenses — from kid camps to family vacations to home expenses. These items have a budget line and are planned for. Our daughter is also aware of this process and of how we need to plan to make things happen. We don’t want her to just assume that in life you can just dash off on an expensive vacation. There is a lot of financial planning to make these events happen debt-free.

    • Your approach makes total sense to us — having one bucket of funds to spend on everything in a month (plus savings allocations). That’s how we basically operate and will operate in retirement. Thanks for chiming in!

  2. Your system and philosophy sounds very similar to ours. This is something we worry about when going to living off of investments. We want to continue to have our spending fit our lifestyle and not live our life around a budget.

    Are you planning to follow a strict 4% (or any other number) W/D plan and if so do you have any particular strategies to not feel constrained by a budget?

    • Great question, and one that probably deserves its own post. As you know, the 4% rule gets tricky when you have only so much in your taxable pool, and need that to last until you can access your tax-deferred funds. We’ll try to post on this in the next few weeks!

      • I’m interested to read your technical approach, but I’m also curious as to if you have any concern on how it will feel to be constrained by a budget in retirement if using a SWR strategy.

        For example, we recently had our basement flood and by the time it was all said and done we were out about $1000. With our current high savings rate, it still isn’t pleasant to deal with this stuff, but not the end of the world. However, when living off a budget based on how much you allow yourself to W/D in retirement, it would seem a lot more stressful. Just curious how you are planning for life’s unexpected events to avoid money going from an item of abundance to a source of stress.

      • Ah, gotcha. So we’ll say, straight off, that we don’t have this totally figured out yet. We are planning to have an emergency fund in retirement just like we do now, to cover things like this. We think that will help. We’re also planning to keep the door open to working incrementally (mainly through one-off consulting stints), and would look to work to cover any potential short-falls, or to help us save for big ticket items like more extravagant trips. We also think that, most years, we won’t use our full allocation of funds, which will help us stockpile for unexpected expenses and/or bigger years. That’s not based on a budget, per se, but just on knowing what we have typically been spending and projecting based on averages. Does that answer your question any better?

    • Sorry, I hit the return button mid-sentence!

      But I was saying that we also don’t adhere to a budget, although I’ve projected what I think our budget will be when we retire early (which is a lot like how we spend now, which feels sustainable for us).

      About auto investments, is really what it sounds like? As in, the money gets wired from your bank account to your brokerage account, and buys your stocks automatically at market price? I’m behind on stuff like this. Probably because most things I deal with are in German!

      • Yes, automatic investing is the best! We’ve set it up with several banks and brokerages over time, and now use Vanguard to do this. We tell them how much to take from what accounts (in our case, our checking account with USAA) and what funds to buy with it. You can specify what day(s) of the month, too. So we have that money go out the same day we get paid, and we never notice it’s gone. We’ve been doing this for years, and it has definitely been our best saving/investing strategy!

  3. Budgets are certainly not the be-all-end-all of living frugally. In fact, in many ways budgets can wind up costing people money because they believe that any money left over in one of those budget categories is ripe for the spending! I used to fall into this trap repeatedly.

    Like you, no kids. Also like you, I work from home. The last thing that we want is more “stuff”, and even when we do need something, we like to ask for it during the regular birthday/Christmas gift-giving process. It works out for everyone that way. :)

  4. We don’t follow a strict budget either. We have our savings come out automatically. Pay the fixed bills. Whatever is left has to cover variables like food, gas, etc.

  5. I used to budget by line item. For things like bills and groceries I still do. But for things like gas, diapers, and those misc things like shampoo and birthday gifts, I’ve been doing it long enough that I have a pretty firm grasp on how much I’ll need every month without breaking it down, so I call it my “spending” category. Try to come in under and throw the excess into savings whenever I can on top of my dedicated savings category. I agree; if it feels like a diet, it won’t work. Gotta do what works for you!

  6. No budget for me either. I spend as little as possible on the necessities and then spend what I want on things that will make me happy, and everything else goes into my investments. Definitely helps that spending doesn’t bring me “happiness” so I don’t have a hard time convincing myself not to buy things that won’t bring happiness or ease to my life!

    • Great perspective! Do you find that spending what you want on things (activities?) that make you happy ever derails your saving/investing goals? Or do you take a looser approach to the whole thing? We still have monthly set amounts with additional targets we try to hit, in terms of our investments, so that helps keep us in line.

      • I wouldn’t say “derails” but I’d say it might put things behind schedule for that month. But yes I take a looser approach to the whole thing. So many variables between now and the time I reach FI that could speed up my FI date or slow it down, that I don’t beat myself too much over it. If I want to travel somewhere and spend a thousand bucks or so, I take the approach that you only live once and I’m not trying to live like a hermit! :) But I’m in the position to max out all my tax advantaged accounts and save on top of that, so I guess it’s easier to make those calls to spend a little for enjoyment.

  7. My husband and I started following a budget in Jan 2015, shortly after we got married. We use a software called You Need A Budget. This process has helped tremendously to discuss and align our savings/investment goals and reconcile our spending now that we are sharing a household. We discuss all spending and now are aligned (with the help of the budget) on what typical spending would be. Before we got married, he spent a lot more at restaurants and bars than I found acceptable. Of course I spent a lot more on haircuts, pedicures, and beauty products than he could even understand! We are learning to “meet in the middle” on spending, and it has been an enlightening journey so far.
    I would call it a flexible budget, because obviously we do not spend the same amount on anything month to month. I know that budgeting and tracking spending is helping us realize how much we actually spend on trivial things and figure out more ways to save for what is actually important. Hopefully one day we won’t need it and can be on “frugal auto-pilot” like most of you all!

    • Congrats on doing what you guys are doing. It’s a huge step. We’ve lived together for almost ten years, so it’s for sure been a process getting to where we are, and our approach has for sure changed and improved over time. Just keep communicating and tracking, and focusing on what’s important to you two, and you’ll get to a place where you’re both happy! Thanks for commenting. :-)

  8. I totally agree and don’t think one needs a formal budget in order to live a life of frugality. In fact, I think budgeting can cause some to actually spend more. I’ll use my usual reference, dieting. If you forbid yourself from eating candy bars and follow a fad diet, eventually you’re going to crash and burn and binge on candy bars. It’s all about balance and adjusting your lifestyle. These things take time. Mastering the art of frugality does too. It sounds like you’ve gotten there, so I am glad you are able to share your success on how it can be done without a formal budget.

    One side note, formal budgets are just awful. They drive me crazy and I never want to follow it. Categorizing stuff is horrible. My thoughts are pay yourself first, then live on the remainder (just like the Automatic Millionaire lays out).

    • We haven’t read the Automatic Millionaire, but suspect that we’ve stumbled into many of the book’s recommended approaches anyway (automatic investing, splitting paychecks so they deposited directly into savings accounts, etc.). And we can’t recommend this approach enough! As our income has gone up, we’ve upped the withdrawals, so we never “feel” raises. Best decision we’ve made! And yes — totally right on the diet metaphor! And we’re the types who would go straight to the candy bar binge if we restricted them. :-)

  9. Ah, to budget or not to budget…this comes up often in our house. My partner does not adhere to a budget, like yourselves, he focuses on good spending habits and seeks value for his dollar. I have always had a budget (since my teenage years). So for me it’s natural to budget. However, I don’t allow it to restrict us, it’s more of a peace of mind. As we get closer to our ER date, I want to be comfortable that we can live consistently within the number we based our FI/RE date on.

    • Wow — a budget since you were a teenager. Impressive! It’s great you two have found a way to mesh your different approaches. We tend to be more similar in our financial behavior by nature (though very different in the root emotions behind it all!), so this is at least one difference we didn’t have to negotiate. :-)