2917: Why I Budget (And Why You Don't Have To) by Kalen Bruce of Money Mini Blog on Budgeting & Personal Finances

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[00:01:06] This is Optimal Finance Daily. Why I budget and why you don't have to.

[00:01:11] By Kaelin Bruce of MoneyMiniBlog.com

[00:01:14] And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:19] Now let's get right to today's post and start optimizing your life.

[00:01:27] Why I budget and why you don't have to.

[00:01:30] By Kaelin Bruce of MoneyMiniBlog.com

[00:01:34] The word budget sparks many different emotions.

[00:01:37] Some people swear by their budget.

[00:01:40] Some people swear at their budget.

[00:01:42] And others swear they had a budget, though they can't seem to remember exactly what's in it or where it's at.

[00:01:48] You used to be hard-pressed to find a finance book that didn't recommend budgeting.

[00:01:54] But things have changed.

[00:01:56] Several finance teachers, like Ramit Sethi and David Chilton,

[00:02:00] have started to move away from the everyone-needs-a-budget mindset, and for good reason.

[00:02:06] They focus more on big savings and less on fewer lattes.

[00:02:11] Today, I'm going to show you both sides.

[00:02:14] Here's why I swear by my budget, and why you don't need one to be financially successful.

[00:02:20] This is why I budget.

[00:02:22] I admit it.

[00:02:23] I don't follow every part of my budget precisely every month.

[00:02:27] I've fallen off the budget train many times.

[00:02:30] But I've always hopped back on, and not for the reasons you may think.

[00:02:34] I don't budget to invest more, save more, or spend less, though it does allow me to do all of those things.

[00:02:41] I budget for the sake of freedom.

[00:02:44] I know that I can buy everything in my budget when I spend every cent on paper before the month starts.

[00:02:51] That means I never feel guilty about spending $50 to $200 a month on myself as a part of my below fund.

[00:02:59] I don't feel guilty buying a new shirt when I have the clothing fund.

[00:03:03] I don't feel guilty when I'm eating out because I know my limits, according to my budget.

[00:03:09] Most of all, I never wonder if I spent more than I earned, because I spent everything on paper first.

[00:03:16] I also budget because I recognize that there are three costs associated with every purchase,

[00:03:22] as Rory Vaden points out in his new book, Procrastinate on Purpose.

[00:03:26] Number one, actual cost.

[00:03:30] The amount you actually pay.

[00:03:31] For example, $3 for a cup of coffee.

[00:03:34] Number two, opportunity cost.

[00:03:37] What you gave up by buying something.

[00:03:40] Example, $3 invested for retirement.

[00:03:44] And number three, hidden cost.

[00:03:47] The potential return you could have earned.

[00:03:49] Example, $3 invested over 40 years with an 8% return equals $65.17.

[00:03:58] I hope that $65 cup of coffee was good.

[00:04:02] To me, this shows just how important it is to save a few bucks here and there on small things.

[00:04:08] Because small wins can equal big wins when compound interest is involved.

[00:04:12] And I'm not saying that you shouldn't buy that cup of coffee.

[00:04:15] I'm simply saying that your small purchases matter more than you think.

[00:04:20] I'm a finance nerd, so it's hard to justify not budgeting when I see how much of a difference a $3 purchase can make.

[00:04:27] But you may feel differently.

[00:04:29] You may hate budgeting.

[00:04:31] If so, welcome to the majority.

[00:04:34] Here's the good news for you.

[00:04:36] This is why you don't have to budget.

[00:04:39] You can be very successful without ever setting a budget.

[00:04:42] How so?

[00:04:43] By taking care of the important matters first and then spending the rest.

[00:04:48] Of course, you can't spend money you don't have or you'll go into debt and you could ruin everything.

[00:04:54] So if you take this approach, I suggest pulling out your monthly spending cash so that you'll know when you're out of money.

[00:05:01] You could call this the minimal money management system.

[00:05:05] You plan enough on the front end that you don't have to worry about the back end.

[00:05:10] So what are the important matters?

[00:05:13] Well, aside from paying off all your debt and having a fully funded emergency fund,

[00:05:18] which is three to six months of living expenses on a bare bones lifestyle,

[00:05:22] there are a few things that you need to take care of.

[00:05:25] If you'll set these things to automatically come off the top of your income,

[00:05:30] you'll be set up for success.

[00:05:32] And you can freely spend the rest of your money on whatever you want.

[00:05:36] Yes, you can buy that nice jacket or those yard gnomes you've been eyeing.

[00:05:41] But once you're out of money for the month, you still have to stop spending.

[00:05:45] So make sure you can pay for things like food and fuel before you get too attached to those sexy yard gnomes.

[00:05:52] Here's the foundation that allows you to spend the rest.

[00:05:57] Make sure you're doing these things first.

[00:06:00] Number one, invest 15% for retirement.

[00:06:04] After your debt is paid off and your emergency fund is fully funded,

[00:06:09] set up an automatic draft for 15% of your paycheck to go into retirement investing.

[00:06:14] Number two, life insurance.

[00:06:18] Buy the appropriate type and amount of life insurance.

[00:06:22] Number three, other insurance.

[00:06:25] Hold enough health, disability, auto, and home insurance to cover the things that you can't afford to replace,

[00:06:32] including your health.

[00:06:33] If you have a lot of assets, consider an umbrella insurance policy.

[00:06:38] Number four, create a will.

[00:06:41] It's important to know what's going to happen after you die.

[00:06:45] If you have stuff, you need a will.

[00:06:48] Number five, save for large purchases.

[00:06:51] There are always large purchases in the future.

[00:06:54] You may need a new-to-you car or a down payment for a home.

[00:06:58] Whatever it is, save an amount every month for this.

[00:07:02] If you don't need the money for at least five years, go with some index funds.

[00:07:06] If you need it before that, go with bonds or a money market account.

[00:07:11] The important thing is to save.

[00:07:14] And number six, give 10%.

[00:07:16] This is optional, but I truly believe that giving is the foundation of receiving,

[00:07:21] and that your finances will never be fully blessed without this piece of the puzzle.

[00:07:27] Give to your local church or your favorite charity.

[00:07:30] The important thing isn't where you give, but that you give.

[00:07:35] If you have all of those areas covered, you'll be financially successful, even without a budget.

[00:07:40] The bottom line?

[00:07:42] Pay yourself and make sure you're protected first, then spend the rest.

[00:07:47] I would argue that you'll be more prosperous if you include a budget in your planning,

[00:07:51] but if it stresses you out and makes you crazy, it's not worth it.

[00:07:55] After all, budgets aren't for everyone.

[00:08:02] You just listened to the post titled,

[00:08:04] Why I Budget and Why You Don't Have To, by Kaylin Bruce of MoneyMoneyBlog.com.

[00:08:10] And I'll be right back with my commentary.

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[00:09:15] I used to swear by budgeting,

[00:09:17] and for me during a specific season of my financial journey,

[00:09:22] it was 100% necessary.

[00:09:25] Budgeting is most helpful when you're trying to grow awareness around your spending

[00:09:30] and be more intentional about telling your money where to go

[00:09:33] versus wondering where it went.

[00:09:35] It's very helpful when you're trying to change something

[00:09:38] about your financial situation.

[00:09:40] When you want to pay off debt,

[00:09:42] build up an emergency fund,

[00:09:44] or reach any kind of financial goal,

[00:09:46] like buying a house or retiring early.

[00:09:49] Budgeting helped me figure out what kind of spending aligned with my values,

[00:09:54] and where I got the most value out of the money I was spending.

[00:09:58] But over time, I stopped budgeting.

[00:10:01] After solidifying the habit of spending well below my means,

[00:10:05] watching every dollar became a more annoying and less helpful activity.

[00:10:10] Once I stabilized in my spending habits and got to a financial position where there was a substantial gap

[00:10:17] between my income and my expenses,

[00:10:20] budgeting had less utility.

[00:10:22] I'm no longer pursuing any financial goals.

[00:10:26] I don't have a need or desire to reduce or monitor my spending closely.

[00:10:30] And I've enjoyed moving past budgeting.

[00:10:34] So if you don't like budgeting right now,

[00:10:36] but it's a necessary part of improving your finances,

[00:10:39] just know that there will come a day when you can put it down too.

[00:10:44] And that should do it for another edition of Optimal Finance Daily.

[00:10:48] I'll be back tomorrow as usual.

[00:10:50] So I'll see you there for the Wednesday show,

[00:10:52] where your optimal life awaits.

[00:10:54] I'll see you there for the next week.