The Anti Budget
If I had a penny for every time I've heard that the traditional budget does not work, I'd be a rich man!
But, let's be honest, traditional budgeting can be difficult and time consuming to manage; and discipline is required too. Indeed, for many people - for all sorts of reasons - traditional budgeting have not and will not work.
So, what do you do? Well, you can stop flogging a dead horse and try something different.
Allow me to introduce you to the anti-budget.
The anti-budget has only two categories: spending and saving. Here is how it works:
At the top of the budget, list your monthly income, after tax.
Next, decide how much you want to save. In this context, “save” is a broad term that includes paying off your debts (beyond the minimum balance requirement), making extra pension contributions or building up your emergency fund.
Under the anti-budget, your “savings” are defined as anything that improves your net worth. Once you decide your target savings goals, transfer this money as soon as you receive it.
For example, let’s say you bring home £7,400 per month and you would like to pay an extra £1,000 per month off your mortgage. Set up an automatic transfer for this money, that takes place as soon as you receive your income.
The money that is remaining after your savings is how you will fund your lifestyle.
Creating a separate account for all your fixed bills, such as rent or mortgage payments, utilities, vehicle payments, mobile and internet services, can help you control your spending. Every time you get paid, move the money into your 'bills' account so that those expenses are automatically deducted when they become due.
When your savings goals and fixed bills are covered, you can spend the rest of your pay on food, clothing, health and beauty goods, and entertainment as you like.
So, your monthly cash flow will look like this:
INCOME minus SAVINGS minus FIXED EXPENSES = SPEND WHAT IS LEFT
In the end, the amount you spend on pints or pasta is inconsequential if you achieve your savings targets and fixed expenses.
As you are transitioning to the anti-budget, monitor your expenses closely to make sure you do not spend more than you have for nonessential purchases.
It might be helpful to stick to a debit card lifestyle for fluctuating or discretionary purchases (like groceries, petrol, toiletries, and entertainment), and avoid using credit cards at all costs.
The appeal of the anti-budget is its sheer simplicity. Once you are set-up, it is like being on auto pilot.
Instead of working through traditional budgets or examining bank statements monthly, you may want to try the anti-budget.
Amyr Rocha Lima, CFP® is a partner at Holland Hahn & Wills LLP, a financial planning practice based in Kingston upon Thames. He specialises in working with successful professionals age 50+ helping them reduce taxes, invest smarter and retire on their terms.
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