A few years ago, we paid all of our consumer debt and students loans and boosted our savings for retirement, all without a strict budget. You can read our story here.
In this post, I’m going to tell you exactly how we were able to gain control of our expenses and pay off our debt without a fixed budget.
Disclaimer: This method worked for us. That does not mean it will work for everyone. Personal finance is just that – personal. You may need to experiment with different methods to find the one that is a good fit for you.
No Late Fees!
When we first got married, we combined accounts and bills that had previously been separate. The very first month of this, I inadvertently missed the cable bill (oh yeah, we were broke and paid for cable, we’ve come a long way!). To prevent that from happening again, I wrote out a list of our bills for each month, the amount owed, and due dates and then checked them off as they got paid. For the past 19 years, this list has kept me from ever having a late payment again.
The list is simply four columns: one for the company to be paid, one for the amount of the bill, one for the due date, and one for checking off when paid.
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Tracking Expenses
Tracking expenses and income is my substitute for a budget and works like a dream for us! Some may still consider it a budget of sorts, but it doesn’t feel like a budget to me since there is not a specific amount of money assigned to each category.
The expense tracking system I use that really helps us with controlling spending and lowering expenses developed out of my reading of the book Your Money or Your Life by Joe Dominguez and Vicki Robin. Their message of examining personal values in relation to money management was really spot on for me.
While I never have followed the plan set forth in the book exactly, what I took from it has been the basis on how we’ve managed our finances ever since. I have tweaked and changed minor things along the way, but it is still very simple.
After I read through Your Money or Your Life and went through the exercises, I developed a written spreadsheet for tracking expenses, which has morphed into a Google spreadsheet that works amazingly well. I track every month in a separate sheet and, at the end of the year, I tally how much was spent in each category for the entire year.
Actually setting up the spreadsheet takes the most time, but, after that, it’s really just a matter of entering your expenses and income on a regular basis. We get a receipt for everything we purchase and just put them in a designated basket, along with any bills, and they get processed in one fell swoop every week. Total time per week: one hour or less.
Note: Since we don’t usually print the receipts for online purchases, we write the amount down on a sticky note and put it in the designated basket.
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Setting up the spreadsheet is not enough. The spreadsheet only works when you put in the effort and do the hard work of actually tracking every single penny that you spend and every single penny that you make. Let me repeat. You have to track every single penny that you spend and every single penny that you make. No fudging.
When I started tracking all of our expenses, down to every last penny, I was then able to take a hard look at where exactly our money was going and evaluate if our spending was in line with what really matters most to us in life. It’s deep, I know.
When we see that we are spending too much in a category, such as dining out, that isn’t a priority for us, that awareness allows us to be more conscious of the expense and lower it the next month.
The beauty of diligently tracking every single penny is that you can get a true picture of what is literally going on in your financial life. You can’t fool yourself into thinking things are different than they actually are if the numbers are right there telling your story.
If you don’t go through the effort to honestly track your every penny, you are cheating yourself and will never be able to reach your financial goals.
At the gym, I see people on the exercise bikes texting or reading magazines, barely pushing the pedals at all. I hate to tell them, but that isn’t a workout that’s going to get results. The same is true of honestly tracking expenses. If you don’t put forth the hard work, you will never get the results.
Once you have been honest about where your money is going, you can evaluate those expenses. Are your expenses in line with what you value most in your life? Are there categories that are sucking twice as much money as you thought they were?
Often, seeing a true picture of what your actual finances look like inspires change. In Your Money or Your Life, the authors state “Since money has a direct correlation to your life energy, why not respect that precious commodity, your life energy, enough to become conscious of how it is spent?”
What really hits home is when you see how many hours you actually had to work to buy things. Was it really worth working a whole week to be able to buy that 70 inch television? Is it worth working a whole year of your life to have that new car? Evaluating the pennies disappearing from your life in context of your values and your precious time can spur dramatic changes.
Tracking Credit Card Charges
The use of credit cards is a whole other post, but let me just say that I would NOT recommend using them if you have any credit card or consumer debt. We have no debt (other than our mortgage) so we successfully use them for cash back and travel rewards.
Since we use credit cards for everything except the utilities and mortgage payments, I also track what is charged on each card each month, as you would in a checkbook ledger. Tracking charges eliminates any unexpected, large credit card bills.
Automation
You’ve heard it before…pay yourself first.
Automation should be a fundamental part of everyone’s monthly finances. Having bills on autopay is handy and ensures they are paid on time.
Automating savings and debt repayment is essential to following through and making progress toward your goals each month.
For us, making savings automatic leaves no question as to whether or not we will do it each month. Our retirement savings is taken directly out of the paycheck and as soon as the paycheck hits the bank, a portion is automatically directed to savings. We never see this money, so we never miss it.
Just Start
This post covered our system for managing finances in a nutshell. At first reading, you may think it appears to be a good deal of work, but I promise that, after you get your lists/spreadsheets and automation all set up, you will be organized and working toward your financial goals, with less than an hour of your limited time devoted to it each week.
Getting started will be the hardest part, but to make changes you have to just start. If you find that you are overwhelmed, break each task down into simple, doable steps and spend just 15 minutes each day working toward getting your finances in order. Small wins add up to big wins over time.
I recommend reading Your Money or Your Life and go through the step by step processes set forth in the book. A variation of this system has worked for us for years, keeping us accountable and guiding us to spend in ways that are in line with the things that are most important in our lives – our family and our time.