Budgeting for the people who hate budgets

Budgeting has a bad rep. Let’s try to rescue it.

What is the single best predictor of your ability to, someday, retire with a measure of financial stability?

If your guess is high income levels or winning the lottery, guess again. Research has demonstrated that consistent saving behavior is the ultimate key.

It sounds simple enough, but surveys show it may be harder than it looks. Compared to a few decades ago, today’s personal savings rate is down significantly (just over 3% today vs. 12-13% in the 1970’s). Respondents to a 2013 survey conducted by the Federal Reserve System reported that 58% of them did not have sufficient emergency savings to weather a loss of a job, an unexpected illness, or an unanticipated expense.

A more recent study from the consulting firm PricewaterhouseCoopers focused on Millennials and found them to be “financially fragile”. As much as 48% of survey participants would not be able to cover an unexpected $2,000 expense, 42% have used a pawnshop or payday loans to make ends meet, and 22% have borrowed against or drawn on their retirement savings.

Why is saving so hard?

Why does saving money present such a challenge? There are several reasons to mention, including relatively stagnant income levels and the increased cost of living (especially in the metropolitan areas where rent can consume up to 40% of one’s paycheck).

Another big reason for this trend is resistance to the idea of using a budget.


People cite all sorts of reasons why budgets aren’t for them. They hate tracking expenses, don’t want to spend their free time on analyzing spreadsheets, and believe budgets are too rigid to be useful in real life. Finally, although this reason is rarely voiced out loud, people don’t want to confront their lifestyle choices. The reality of money coming in vs. going out can deliver a hard “virtual slap” for many who would rather splurge without awareness of what that behavior is doing to their long-term financial stability.

If you have had a tough time saving money consistently and believe that a traditional budget just won’t work for you, consider giving this idea another try. Today’s technology can streamline and automate many steps that used to be tedious and time-consuming. By minimizing the pain points and maximizing the benefits, you might just discover that the right budget facilitates good decisions and helps you sleep better.

Step 1: Eat the frog

No, there isn’t a way to skip this. In order to make better decisions with your money, you need to have a reliable baseline. “Doing the budget in your head” or “having a sense for how much you spend in a month” won’t cut it. Treat this as a one-time effort and power through it to get a documented starting point.

The least painful way to get there is by combining your bank account transactions with your credit card statements. Most institutions will give you the option of downloading your activity into an Excel spreadsheet, which makes the data easy to manipulate and analyze (i.e. no need to type in every $3.55 Starbucks purchase). Keep in mind apps like Mint (powered by Intuit which is the name behind TurboTax and QuickBooks) can do much of the legwork for you. 

Now that you have a historical record of where your money goes, look at high-level categories. Don’t sweat every small purchase (we are looking at you, caramel soy latte) but focus on trends and large amounts first. How much do you bring in? How much do you need to cover your basic living expenses such as rent or mortgage, utilities, car lease, insurance, and phone bill? Where do you spend the rest? Do you make more than you spend, or does the “extra” spending spill into credit card statements (or deplete your savings balance)?

Finally (but perhaps most importantly), do this without judgment. If you allow for that old broken record to start in your mind, the exercise is doomed to fail. You may have to pretend that you are looking at someone else’s spending patterns – any trick will do, as long as it gets you to the other side!

Step 2: Automate, automate, automate

An average human brain isn’t designed to be rational. Savings is all about forgoing immediate gratification in favor of future comfort. The problem is that “future” is an abstract concept, whereas that pair of shoes on sale is quite tangible.

What to do? Forced savings may be the answer.  Automating good behavior can be remarkably effective because the result no longer depends on your memory or willpower. Set up a small daily (or weekly, or bi-weekly to match your paycheck) transfer that will move money from your checking account to a savings account. It does not have to be a painfully large amount, but it does have to be consistently enforced.

Here, once again, technology can be your best friend. Apps like Betterment or Acorns will allow you to set up automated transfers in minutes. You can even create special transfer triggers (for example, any time you buy fast food or shop in a favorite “splurge” store, a specified amount gets moved to a savings account). By reducing the amount that’s available for mindless spending, you create a system where splurging on a new pair of shoes takes extra steps (which means you are less likely to do it impulsively).

Step 3: Use separate accounts

For some people, setting up different accounts for different purposes can be a surprisingly effective way to manage spending. This path will take a bit of leg work, but you might consider designating one account to cover regular monthly bills (rent or mortgage, utilities, insurance, child care, etc.), another account for emergency savings, vacations, wedding, etc. This bucket approach allows you to monitor big spending categories without getting lost in the detail.

Finally, use a separate account (or even an old-school and low-tech envelope with cash) for expenses which you tend to overdo. Once the money runs out, you have the choice of cutting yourself off until the next pay cycle or adjusting your budget to be more realistic.

Patience and clarity of purpose are key!

Mistakes and errors in judgment are natural parts of the human experience. Therefore, resolve to be patient with your progress. The budgeting process works in the long run, and you must design ways to make it through several budgeting cycles in order to see the early results. Money management is a practice, not a performance. If you hit a tough spot or fall off the wagon, take a deep breath and try again.

Above all else, and especially if you are tempted to quit the budgeting exercise, remind yourself why it matters. Perhaps, if you are independently wealthy, budgeting isn’t all that important. For the rest of us, budgeting is a powerful tool to re-align our spending patterns with our values. Reflect on your definition of financial success. Think about things, people, and experiences that light you up and make your life brighter.  Then, vote with your wallet so that your money buys you more of what you value.