I have a confession to make. I have never had a financial budget nor had I ever followed a strict budget for my expenses. I know what you’re thinking. I am a personal finance blogger and a money geek, yet I don’t have a budget? That’s outrageous. I am such a terrible hypocrite.
Before you crucify and nail me to a cross, just let me have a moment to explain why I don’t have a budget. First of all, personal finance is personal. What works for one person may not work for another. I do see the benefits of having a budget, but I just don’t see myself following one. It’s too restrictive. Another reason is that I do things a little differently than others and I like to be a bit of a maverick and challenge the conventional norms.
I am not saying that having a budget is bad or not helpful. If you can’t live without updating and checking your budget on a regular basis, then, by all means, continue to follow your budget. What I really want to demonstrate is that you can achieve financial success without a budget. How did I do it? Read on.
Spend What’s Left Of My Savings
Both my wife and I automate our savings by contributing and maximizing to our employee share ownership plan (ESOP) for every pay cheque. From day one, we never got that money and we learned how to live off of what we had leftover after our savings. Both of our contributions and the matching go straight to our Registered Retirement Savings Plan (RRSP). This allows us to get a decent tax refund when we file our taxes at the end of the year.
Save My Bonuses and Tax Refunds
Every year, when we get a year-end bonus, we direct most of it to our RRSP too. With our bonuses and ESOP contributions, we were able to max out our RRSP contribution every year. Once we filed our income taxes, we often get a decent tax refund. We use our tax refunds to max our TFSA contributions and our kids Registered Education Savings Plan (RESP).
Borrow To Invest
When you have a loan, you have to pay both the interest and principal for every payment. Since I borrow to invest, I need to include these loan payments as part of my monthly cash flow. As I pay off the principal part of the loan, I am actually forcing myself to save money. In addition, I get a portion of the interest expenses back in the form of a tax refund because interest paid for the purpose of earning an income is tax deductible.
Control My Shopping Habits
I am not a big fan of shopping and I don’t go shopping very often. Most of the time, if I ever shop, I usually buy my stuff ahead of time before I need it and they are usually priced at a huge discount. I often place more emphasis on the utility of the item rather than the label of the item. For example, if I want a white t-shirt, I’ll buy whatever t-shirt that feels comfortable not the label on the shirt.
Always Pay My Bills In Full
It doesn’t matter what bills I have, I always pay every bill in full every month. My view is that it’s a waste of your hard earned money if you are paying late fees or interests on any bills. I have rarely missed any bill payments and I am committed to paying every bill on time. In a way, this habit can have a great effect on my credit score too.
Be A Conscious Grocery Shopper
Whenever I am shopping for grocery, I don’t have a specific shopping list. Whatever is on sale at the supermarket and it’s something I eat, I’ll buy it. Simple as that. I don’t need to shop for specific produce or meat when I buy my food. In a way, I can buy whatever I want to eat as long as it’s on sale. I also grow my own fruits and vegetables in my backyard too. That saved me quite a few dollars in the summer months.
Live Pay Cheque To Pay Cheque
I chose to live this way not because I have to, but because I want to maximize the efficiency of my money. I keep a minimum balance in my bank account and direct any extra money to either pay off my investment loans or to my non-registered investment account. This way, every dollar is working hard to either help me earn more money or reduce my interest cost.
How Much Did I Save?
On an annual basis, we saved on average about 30% of our annual income. It’s not a phenomenal percentage by any means, but it’s sufficient to help me to build a net worth of over $1.3M before the age of 40. Can we do better if we have a budget? Absolutely. For now, I just don’t feel the urgency to maintain a budget as I am happy my current system and it’s sufficient for my needs.
My Two Cents
A budget is just a tool to help you organize your finance and keep your records in order. Nothing more and nothing less. Some people work better when they have a systematic way to account for every dollar. However, having a budget does not necessarily mean that you’ll be able to achieve financial success. What it comes down to is the ability to save diligently, spend responsibly and invest wisely.
So readers, how do you achieve your financial success? Do you have a budget and follow it strictly? On average, how much of your annual income are you saving? Share your successes.
About Leo
Interesting Leo, thanks for sharing your personal story there. You are unique in your success this way (per quite a few studies) but I know others who done similar also with good results. As you said, personal finance is personal. So what works for one doesn’t always work for another.
@Brad, I think that it’s not that difficult to achieve financial success if you develop the discipline to ensure that you spend less than you earn. After that, it’s up to you to grow what you have saved.
I use same approach…
Not only is a budget restrictive, with complex finances, creating a budget is A LOT of work… too many lines… I have yet to find a budgeting tool that is easy enough to work with higher level info within the same tool that lets me track at very detailed levels.
Instead, I do monitor spending closely and always compare past spending to gauge future spending, especially in discretionary spending categories, e.g. vacations, grocery spending, clothing, etc.
I do say that I believe budgets are A MUST for those that find they have more month at the end of their paycheque or have trouble creating reserves, savings, etc.
Thx for sharing.
@Smayer97, You are right that when you have your finances spread in different areas such as real estate, stock market and personal savings, it’s a bit difficult to have a set budget. It makes it more complicated to track if you are borrowing to invest in my case. I just make it a goal to track my net worth to ensure that I am worth more tomorrow than I am today.
Nice Leo
Like you i no longer budget. When i was hardcore pay off debt i did and it helped alot.
Now we enjoy our money but dont go crazy. I like to have 3k in our account every pay period everything over that gets invested. It gos lower throughout the week and then Friday or every other friday i rinse and repeat. All bills and credit cards are paid in full. Its a simple way of doing things i find.
Cheers
@PassiveCanadianIncome, having specific accounts for your spending and investment is a great idea. This way, you’ll always know what each account has and if you are within your budget or not.
“Control Shopping Habits” is something I should pay more attention to. Because they make it super easy to pay for everything and you don’t feel like your money disappear when paying with all kinds of electronic payments
I believe that in order to save more, we’d need to make more lol. One of the ways is to “invest wisely”, like you said. Thanks for sharing this!
Laura
http://www.wanderwithola.com
I think having a budget is important. I always make sure to have one. I always pay my bills in full at the end of each month too. I do have credit cards, but I always pay them off as well, and then I have fun with the rewards. I also do not live paycheck to paycheck. That makes me nervous. Not for me!
I always try to have a budget when shopping. I have a horrible shopping habit, so I always tend to buy more than needed. I need to tone it down a bit.
We are trying to work up our investment portfolio and I never would have considered borrowing to invest rather than to spend. I love that you are also a super conscious grocery shopper, we always make our meals with what is on sale at the store. There are so many insightful tips that you provided my husband and I are going to sit down together and read through them to see if there are better ways that we can be maximizing our money!
This is really interesting, sometimes I think you manage to save more when you don’t notice it going out. Budgeting most definitely really helps though and it is something I need to work on more.
Hmmmm…we have a budget, but a lot of our finance activities are similar to those listed in this blog. Our budget is just in place so that we know how much we have and can spend and save!
We are not on a budget for the moment. But we want to go on that route. We same about 20% of our salary every month. There are indeed months where we have more expenses, like the dentist or medical expenses, and then we would save last.
I have learn so much on this, young people should read this. I just recently paid off my car and building up my retiremend funds. Same with my husband. Our goal is to mininize our debt and retired early. It wasn’t easy goal but it could work out.
I enjoyed your perspective on this. While I don’t have a strict budget I do have one. For me especially, I find it helps to keep me from overspending or even spending on trivial stuff that I don’t really need.
Wonderful tips and insight on staying financially successful and secure. I definitely believe in making sure my bills are pay in full to avoid late fees and crazy high interest rates.
Yes, you are right. Unless you are careful about shopping, it can spoil your fiance. Good points and good post for people who do not think of the days of the month ahead.
Budgets ugh I don’t like that word. But I agree we do need to be careful with our spending, don’t want it to come back and bite you down the road. Cards are very sneaky but thats what i mostly use. Great post
Karamel_KC
http://www.karamelsessence.com
I think it’s important to create a budget for yourself at the beginning so you have a better idea of how much you realistically have to spend each month, taking into account monthly financial responsibilities. Once you understand money management, it may not be necessary anymore.
We never had a budget. But we are very cautious with spending. We max out all registered accounts which is already more than 20% and then save some. As long as one live within their means, through a budget or not really doesn’t matter.
I love your tips! I definitely need to be better about following through with some of them.
This was a wonderful post! I think if you don’t have a budget , then you would have at least a goal and great self-discipline. Thanks for sharing! 🙂