In the long run, I want to be focused on the goals, my ideal world, and helping people however I can. In the short run, I have to take steps to ensure those things are happening, but it’s not a highly regulated environment and I’m free to change it up whenever I want. If anything, it’s a flexible-but-purposeful environment.
That’s a quote from Chris Guillebeau’s book The Art of Non-Conformity. He’s talking about the way he lives his life in general, but as soon as I read that I thought: “That’s exactly how I budget!!!”.
Yep. Super nerdy. I make no apologies.
But here’s what I mean.
A lot of people think of budgeting as an exercise in restriction. They think of it as a way to save more for the future by setting strict limits on how you live your life today.
And when you think about it that way, it doesn’t sound all that appealing.
But to me, budgeting is about creating a system that allows you to consistently work towards your long-term goals while also giving you the flexibility to live your life in the moment and make spontaneous decisions.
That is, a good budget is “flexible-but-purposeful”.
In this post, I’d like to show you how I’ve set up my own budget to be just that.
My purposeful system
The main point of budgeting is to use your money purposefully in order to build a life you enjoy. So the big challenge then is to create a system that sends your money where you want it to go instead of just spending it as it comes in.
In my own life, there are two big goals that I want to always be purposefully working towards:
- Ensuring that there is always enough money to provide my kids with at least the basic essentials.
- Our eventual financial freedom, when we’re free to making life decisions without worrying about the financial side of things.
So for my budgeting system to work, it has to consistently be making progress towards those big goals.
Here are a few of the ways I’m doing that.
1. Keeping a month’s worth of expenses in checking
This is one of the founding principles of the You Need a Budget system. And while I’ve never personally used their entire system, this one piece has been incredibly helpful.
Instead of ending each month with $0 in my checking account, I try to end with enough money to pay all of my bills and hit all of my savings targets for the next month. In other words, I try to make sure that I have one month’s worth of expenses in my checking account at all times.
This ensures that I’m never scrambling to pay a bill or wondering how I’m going to hit my savings goals. Even if I have a month where I spend more than usual, the buffer in my checking account gives me plenty of time to make adjustments without missing any important payments.
2. Automating basic bills
Rent, electricity, water, trash, cell phone, insurance, etc. All of those basic bills are set up on auto-pay, which ensures that they get paid on time and the lights stay on no matter where I am or what I’m doing.
3. Automating savings
By automating my savings, I know that I’m making the same consistent progress, month after month, towards my financial freedom.
4. Thoughtfully reducing expenses
Every now and then I try to re-evaluate how I’m spending my money to see if there’s anything I could cut out without negatively impacting my life.
This kind of thinking has led me to do things like cut cable, bring my own lunch to work, and cancel the collision and comprehensive coverage on our cars.
Each of these little decisions reduced my spending on something I didn’t care much about so that I had more money available for the things I did care about.
5. Expecting the unexpected
Life never works out exactly as planned. There are always little things that come up that require money when you least expect it, so I do my best to prepare for them ahead of time.
I save ahead for irregular expenses like car maintenance and travel, things I know will come up but don’t know when, so that when they DO come up I have the money ready.
I keep an emergency fund at all times, on top of those savings for irregular expenses, to handle the really big potential financial needs.
And I have plenty of insurance to cover the things that I wouldn’t have enough savings to handle on my own.
These things not only ensure that my family will always have money available for whatever comes up, but they actually give me more freedom to chase some of my bigger goals.
That system gives me flexibility
All of that serves as the basic framework of my budgeting system. If it sounds like a lot, well, it kind of is. And the truth is that it took me a long time to get all those things in place. I certainly didn’t start out with a full-fledged system.
But now that it’s in place, it does two big things for me:
- Since most of it is automatic, I can keep making progress towards my goals with minimal effort.
- Since the basic framework is so strong, I have the flexibility to make more spontaneous day-to-day decisions without worrying about throwing my plans off track.
The system essentially runs itself at this point, which means that I actually get to live without the daily pressure of staying within strict limits or adhering to rigid rules.
If we’re out and about and want to buy the kids ice cream, we can do it. If we spend more on eating out in a particular month, it’s no big deal. If we decide that we want to fly back to Boston to see my family, we can do it.
Now, we couldn’t make these decisions all of the time. If we spent like that every single day, the system would quickly fall apart.
But the system ensures that we don’t spend like that every single day. We’ve set it up so that our normal, day-to-day habits keep us on track towards our long-term goals.
Which is exactly why spontaneous decisions to spend a little here and there don’t matter so much. Over the long run the system will win out and keep us on track.
That big picture stability makes our daily lives a lot less stressful and a lot more fun. Without the pressure of having to live within strict limits, we have more freedom to actually enjoy ourselves.
We could choose to be flexible without being purposeful. We could spend what we wanted every day without any plan or system in place.
That wouldn’t get us very far. Well, it would probably get us into debt. Or it would at least get us years down the road without any savings to show for it.
We could also choose to live within strict limits, forbidding certain types of purchases and removing any kind of spontaneity from our lives.
That might help us build our savings, but it wouldn’t be very fun.
Instead, we’ve worked to create a system allows us to work towards our long-term goals while still keeping the day-to-day freedom to make spontaneous decisions.
The system allows us to be purposeful over the long-term and flexible in the short-term. And THAT is what budgeting is all about.