What is a Budget?

what's in a name

Last Monday I wrote about starting your budget with something you’re truly excited to either spend your money on or save for. It was a call to budget with a passion. It drew some interesting comments from readers claiming they didn’t have a budget, and that got me thinking.

What is a budget?

When we hear the word “budget”, I think most people have a pretty similar idea of what it means. There’s a list of categories (sources of income, savings goals, bills, etc.) and all of your money fits neatly into one of them. By the end, you know exactly where all of your money is going and can track your “performance” against that budget.

That’s certainly one way to do it, but as I’ve learned over the years there is never only one way to do something. So let’s look at some of the different ways people “budget”, even if they say they don’t.

The hassle-free approach to budgeting

One of my favorite comments came from my friend Pauline, who said:

I just take out all the bills and savings goals from any income at the beginning of the month and what is left is fun money. It takes the hassle out of budgeting.

I love this approach because of its incredible simplicity. I’ve actually considered using this exact approach before, but have never adopted it just because I have a different system that works and haven’t felt the need to change. But it’s still tempting and I certainly might switch at some point in the future.

So is this budgeting? I think it is, but honestly the answer really isn’t important. What I do think matters is that she’s adopted the main point behind budgeting with a passion in that she’s taken the things she cares about, in this case her savings goals, and handled them before giving herself her “fun money”. And the best part of all is that she’s removed most of the barriers that make classic budgeting difficult. Because the important stuff is already handled, there are no difficult decisions about spending or saving the money that’s left over. Whatever’s in the account is free to spend without guilt. This is truly a no-hassle approach to budgeting, and it’s actually one I would probably recommend to anyone just starting out.

A true no-budget approach

Another interesting concept came from my friend A. Blinkin:

Maybe I’m a complete n00b for never creating a budget. I think I’ve always considered budgets to be restrictive (as you stated) and that doesn’t have to be the case. I have also thought that my wife and I don’t need a budget because we have high incomes and low expenses, BUT the way you (or Jacob) position it makes it sound more necessary than I’ve always thought. Everyone can afford to reduce some waste.

In this case, he’s explicitly stated that he doesn’t have a budget. But he also states that he and his wife have a high income and low expenses, so how necessary is a budget really? If you’re living well below your means and are comfortable that you’re successfully working towards your goals, then I personally don’t see any need to have a traditional budget. While it’s certainly possible that you might identify some “waste” if you list everything out, I think there’s a certain point at which the time and energy to do that just might not be worth it. After all, life is about enjoying the things you truly care about, not about tracking your spending. If you can do the former without the latter, good for you!

I will say that I doubt that most of us are at a point where we can do this successfully. I know we certainly aren’t. But for those of you whose income is simply far greater than your expenses, this could be a reasonable approach. No need to make things harder than they have to be.

Budgeting vs. tracking spending

My friend Ree wrote a great article last week on struggling with the polarity of money, and one of her points was that she thought tracking spending was more important than having a budget. I actually 100% agree with this sentiment. The most important thing you can do is be conscious about your spending and saving, and it’s very difficult to do this well if you haven’t spent at least some time tracking where your money is going. What you do with that information is up to you. You may end up making a traditional budget and holding yourself to strict spending limits, or you may do something a little more fluid, such as Pauline’s approach from above. But simply tracking your spending gives you the information needed to make these decisions and to monitor how they pan out.


Thomas from Your Daily Finance summed it up well in another comment:

I think you have to do what works for you and your family at the end of the day. Whether you want to call it a budget or something else find something that works stick to it but make adjustments along the way. I like structure and still think you should be able to enjoy life. Though I find that too many people waste money on things they claim make them happy. Follow your own path you dont have to do what the next man or woman does. Find your own happy place and enjoy life.

There’s no one-size-fits-all approach. In the end, you simply have to find an approach that allows you to use your money to reach your goals. The specifics of that approach are unimportant, as is whether you call it a “budget” or something else. It’s the results that matter, and we all have different ways of getting them.

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48 Comments... Read them below or add one of your own
  • MyMoneyDesign July 29, 2013

    Posts from people who left you great comments are a great tool. Its always good to explore a lot of other opinions and ways of doing things.

    Though I like the simplicity of some of these methods, I’m not sure if you could categorize them as budgeting. Don’t get me wrong – it’s wonderful to make more money than you spend. That’s a formula that will keep your finances from going in the red. But how do you know when your spending finally does overtake your income if you don’t track it? How do you know you’ll be able to stash it away for other things? There are a lot of un-answered questions.

    To me: Budgeting is all about hitting certain goals. “I will get this much in my 401k” “I will have $500 to put in an IRA” “I will save up this much every month for a house” ” …. and I will do it because I keep my expenses down here and my income up here”. A disciplined combination of planning plus tracking makes it possible to actually put our mind towards something and achieve it. That’s what I like about budgeting.

    • Matt @ momanddadmoney July 29, 2013

      I feel like you kind of answered your own question here. If the point is to make progress towards certain goals, and you’re doing that without tracking your monthly income/expenses (e.g. through automated transfers), then why would there be a need to track? I do think you need a plan, and a way to implement that plan, but I don’t think that everyone has a need for a traditional budget. Whether you call their approach “budgeting” is, in my mind, irrelevant. They’re working towards the same end, so good for them.

  • I used to be very regimented in my budgeting when my wife and I had just got married and had our giant mortgage debt.

    Now that we have almost paid off our mortgage we are less budget focused, but I think we still do pretty well just because we were budgeting for so long. It is almost like it became second nature to us.

    • Matt @ momanddadmoney July 29, 2013

      I definitely agree that it can become second nature. At this point our habits are so ingrained that we don’t worry too much about it on a daily/monthly basis. We still track everything against a budget, but it’s more with an eye towards long-term trends than to limit ourselves in any given month.

  • Holly Johnson July 29, 2013

    We do a zero sum budget because I have found that we end up saving a lot more that way. We’re not doing as great as we used to but we are getting serious again now that summer is basically over.

    • Matt @ momanddadmoney July 29, 2013

      Does that mean that you’ve simply budgeted all of your income? Or is it that you don’t allow your spending in any month to outpace your income for that month (or the month before)?

  • DC @ Young Adult Money July 29, 2013

    Essentially what we do is track our expenses and see if we are spending too much in any given category and try to lower it the next month. A very large majority of our spending is on fixed expenses or emergencies (i.e. garage door springs break and need to be repaired), so we haven’t had to do much adjusting. The data is there if something does spike, though.

    • Matt @ momanddadmoney July 29, 2013

      We’re similar. We track everything so we can see how we’re doing from a long-term perspective and make adjustments as needed.

  • Ree Klein July 29, 2013

    Hi Matt,

    Great post and it shows that people can succeed with money in different ways. The most important thing is to pick something and give it a try. Modify and move forward.

    Thanks for the mention, too!


    • Matt @ momanddadmoney July 29, 2013

      Great point. Simply getting started is such a huge part of success. You’re not going to get it perfectly right at first, but you can change it up as you go.

  • Andrew July 29, 2013

    I like the hassle free budget…I’ve done a quick budget of the big monthly expenses and determined my savings goals but I don’t have a hard core budget where I list out all the expenses nor do I track spending. Like A Blinkin, we live below our means, though we are not high income…we do not spend frivilously. It might be helpful at some point to make a more detailed budget or to track our spending, but since my and I more or less scrutinize each purchase…there’s not a big need to do so.

    • Matt @ momanddadmoney July 29, 2013

      Sounds like you guys have an approach that works well for your lifestyle. I personally think it’s helpful to track our spending, but I certainly understand why not everyone would have to.

  • John S @ Frugal Rules July 29, 2013

    Nice post Matt! I think we have to go with works for you personally regardless of what it’s called. We’ve budgeted for years and it works out great for us. Many do think that having a budget is restrictive, but I view it the opposite way…it’s freeing. It frees us to map out how and where we want our money to go and work for us. I do caution though, that this can be done but simply veiled as a way to overspend – which really only defeats the point of budgeting in the first place.

    • Matt @ momanddadmoney July 29, 2013

      I definitely agree that it can be freeing when done right, though it can take some time to get there. But it’s nice to know that you’ve made conscious choices about where your money is going rather than simply spending it on a whim.

  • Budget & the Beach July 29, 2013

    I used to be like the couple that made a lot more than my expenses, but I still wish I would have budgeted back then so I could have a lot more rainy day money and also to more carefully plan so I could travel more. Now as a freelancer I really need a more traditional budget. It’s the only way I’ve been able to “train myself” to be more of a conscious spender.

    • Matt @ momanddadmoney July 29, 2013

      I think that’s a great example of different approaches meeting the needs of different lifestyles. And also a good example of learning your preferred method as you go. It’s not likely you’ll get it right the first time.

  • Debt and the Girl July 29, 2013

    Budgeting has always been tricky for me. Its been hard to stick to one budget especially as my income grows. Regardless, we need to really push the budgeting. I just want to make sure I am still living so that I can enjoy life somewhat as well 🙂

    • Matt @ momanddadmoney July 29, 2013

      Income growing is not the worst problem to have! You do make a good point about being able to enjoy yourself today too though. To me, a budget actually helps me do that because it helps make sure I’ve cut out waste on the things I don’t care about so I can focus my money more on the things I do care about.

  • Michelle July 29, 2013

    I like to budget because I like to see where my money is going and how I can improve. I don’t follow it exactly, and I don’t always look at it. However, people who have problems with managing money should definitely start a budget.

    • Matt @ momanddadmoney July 29, 2013

      Sounds like you have pretty much the same approach as us. And I definitely agree that if you’re starting out, at the very least tracking your spending is a good idea. It’s so hard to make decisions about how to change if you don’t start from the baseline of what you’re currently doing.

  • Done by Forty July 29, 2013

    You really touched all the bases here, Matt. I’m a big proponent of using the plan that works for you (the budget that gets you to your goals is the “right” budget…the sport that gets you to exercise is the right one, etc. etc.).

  • BrokeMillennial July 29, 2013

    Fair point, a budget is whatever method you use to track your inflow and outflow of money. I’m certainly not in the write down every nickel and dime I spend camp, but I do have a system that works for me.

  • Nick @ ayoungpro.com July 29, 2013

    I do pretty much what Pauline does. To me, a budget is a system that allows you to know where your money is going, and direct it to the areas of your life that you find value in.

  • E.M. July 29, 2013

    When I first started getting serious about debt repayment, I found it to be helpful to make a spreadsheet with relevant categories, and then fill in what I spent on those categories in the past. For the most part it was consistent, so I didn’t have to change anything around. I use it to mostly track my spending, which I agree is important – if you don’t know where your money is going, how will you know if you’re comfortable with the amount you’re spending on certain things? My budget is mostly a reference, I don’t like it restrict me too much.

    • Matt @ momanddadmoney July 31, 2013

      Tracking my spending was one of the most important things I did when starting out as well. I’m not sure how I would have figured out how to change my behavior without it. And I still track spending, though like you said it’s more as a reference than as a way to restrict.

  • cashRebel July 29, 2013

    For a long while I never had a budget, but once I got my financial house in order, I realized that it just makes sense. I go over on some categories pretty regularly, but at least having that framework gives me a frugal level of spending that I know will align with my goals.

    • Matt @ momanddadmoney July 31, 2013

      Yep, it’s all about aligning with goals. Tracking my spending across categories helps me do that personally.

  • For us, when we were single we didn’t really have formal budgets, just controlled spending and made sure money was being put away every month. But working together it has always felt easier to have categories for different spending. It’s not hard and fast, but just a way for us to keep an eye on what we usually spend in those categories, and if we’re trending high step back and make sure we’re both on board with what’s going on. I think the problem with budgets is when people treat them like they’re infallible papal doctrine and see missing a budget as a personal defeat.

    • Matt @ momanddadmoney July 31, 2013

      Couldn’t agree more, and it sounds like we are pretty similar in our approaches. I can certainly see the value for setting hard limits in some cases, but for us that’s not really necessary. Like you, we track things so that we can reflect on things together and make sure we’re on the same page about long-term goals.

  • Alexa Mason July 29, 2013

    I budget by paycheck right now. As soon as I get my check I go over what bills I have to pay and then go from there. After I get the bills paid I budget the rest for food, gas, and babysitting expenses. Not much left after that.

    • Matt @ momanddadmoney July 31, 2013

      I think there are a lot of people that do things that way. It’s definitely a good approach that I missed in this discussion. It’s not something I’ve ever done but I think it’s a great way for people to make sure that all their money is accounted for properly BEFORE it’s actually spent.

  • femmefrugality July 29, 2013

    I like budgets, but we’ve been having some major fails with them lately. Variable income.

  • Edward - Entry Level Dilemma July 30, 2013

    I’d say I’m somewhere in between simply tracking spending and having a budget. I project my cash flow forward and then see where I might have problems, or where I need to up my game, savings-wise.

    • Matt @ momanddadmoney July 31, 2013

      I do the same thing with cash flow. Mostly I just want to make sure we have enough in our main checking account at all times to cover our expenses.

  • Thank you for the shout out Matt, I think it is not a one size fits all but the important thing is to have your financial life together, whatever that means to each individual.

  • Shannon Ryan July 30, 2013

    I think it’s incredibly important to know your inflow and outflow of cash, but as you said – it’s personal. I’m a numbers person, so I’m pretty detailed but for some people (i.e. Pauline) that would be too much. Clearly, her method is working very well for her and that’s what matters most. Find a method to track your spending and examine to make sure you’re not wasting money (virtually most people have some waste initially) and spending it on things that truly matter to you. Great post, Matt!

    • Matt @ momanddadmoney July 31, 2013

      Eliminating waste can definitely be an ongoing struggle. I do think that at least some amount of tracking helps tremendously with identifying waste, but beyond that some people will settle on a detailed approach like yours and some will be fine with a more high-level approach. As long as it works, it’s all good.

  • Greg August 4, 2013

    I am a bit of a lazy budgeter. It works for me, though, because I find that I severely overestimate how much is going out and underestimate what is coming in. So when I actually crunch the numbers and they look good, I get more relaxed than I otherwise would. So it is better for me to do it somewhat loosely because my natural tendency is to save as much as possible.

    • Matt @ momanddadmoney August 5, 2013

      Sounds like you’re more in the Pauline/Funancials bucket. As long as you’re hitting your goals, it’s all good with me.

  • SuburbanFinance August 9, 2013

    I always hated the idea of budgeting, but once you get a better understanding of the freedom that comes with using a budget you fall in love with it.

    • Matt @ momanddadmoney August 9, 2013

      I definitely agree. I think you have to play around with it for a little bit before you find the method that works for you, but once you get it it’s definitely freeing.

  • Michael Taylor November 2, 2013

    My definition of a budget is simply telling your money where to go. Be proactive on your spending and your saving. Great article.

    • Matt @ momanddadmoney November 3, 2013

      I agree. Having a purposeful plan that moves you towards your goals is incredibly important.

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