No Budget No Problem. Saving the Simple Way

Have you tried budgeting and failed or maybe you haven´t even tried because the thought of assigning every dollar to a spending category makes you break out in hives?

Fear not.

You can save money without a budget in sight. In fact for many people the No Budget No Problem approach actually produces better results.

If you landed on this page it´s probably because you´ve heard countless times that you should budget and while you are fired up about improving your finances budgets just don´t float your boat.

There is sooooooo much content out there about budget planning.

Which I find surprising because if i´m not into it, and I consider myself a gigantic nerd, it really makes me wonder what percentage of the population is actually into this stuff.

Here´s the thing, any piece of advice is only going to work if you actually do it.

Shocking right?

So no matter how passionate your neighbour is about budgeting the pennies for that week´s toilet paper if it doesn´t do it for you ditch the Excel and budget printables.

There´s another way.

In my household we don´t budget.

We never have and yet we don´t live under a bridge. In fact, we have a savings rate of about 50% and we´ve grown our Net Worth from €75,000 to €350,000 in four years.

So what do I do?

You do the NO budget.

Step 1. Get Paid

Step 2. Straight away send “X” amount to “savings”

Step 3. Live off what’s left until next payday

Wait...what?

Yep. It´s that simple.

What´s the whole point of a budget anyway?

To not overspend and to save a certain amount of money right?

So remember why you’re doing this and just do that one thing. 

Decide how much you want / think you can save each month and the second you get paid automate this amount to savings. 

Then you deal with whatever you’ve got left over.

How do I know how much to send to savings?

First, you have to first know your current situation.

Second, you need to create a goal.

Third, you need a plan to get there.

01. Know your Current Situation

To know your current situation you start by calculating your Savings Rate.

Don’t freak out! It’s not complicated.

“Savings” is anything that ups your Net Worth game. So if you’re paying off any kind of debt, car loan, student loan or mortgage, all the money that goes towards the principal (not interest) is already savings. 

Good for you. See? you’re already well on your way.

Add to that anything else that is upping your Net Worth, money you’re saving into a checking account, towards investment accounts, employer matched accounts, retirement savings.

Add the whole lot together and that’s your savings amount.

Divide that amount by your after tax income for the same period and multiply by 100. 

If that doesn’t sound simple enough, here’s a wee diagram…

And BOOM!

There is your savings rate!

02. Create your Goal

This is where you need to take some time to reflect on more than just money stuff, you need a goal.

Not a dream, a goal.

Where do you see yourself in 5, 10 or even 50 years? What really matters to you?

Do you picture a large family and helping kids or grandkids through college? Could it be to travel and be a digital nomad? A business owner? Real estate investor? Maybe you want to live in the mountains and be a llama farmer?

Whatever it is, take some time to define your goals and write them down on paper, it will help to make them more real.

Now you know what you want you can set a time period for each, your financial goal should be specific. 

Maybe you want your student debt paid off within the next three years or to acquire the down payment for your first home in the next 18 months. How much do you want to have saved for retirement and by what age?

Whatever your goals break down each one into 3 sections working backwards from long-term goals to short-term goals and finally immediate goal.

For example an immediate goal might be to build an emergency fund and work on improving your credit score.

Your short-term goal could be to save enough for a mortgage down-payment and continue to improve your credit score.

Your long-term goal could be build “x” in passive income through real estate.

03. Build a Plan

If you´ve done part 1 and 2, knowing your current financial situation and creating your life goals you´ve done more than 99% of the population.

Take a minute to pat yourself on the back. You´re awesome!

You know what you need to do now and why you´re doing it.

Here´s some tips to help you get there.

Follow the 80 / 20 rule

Hopefully your savings rate calculation came out to around 20%. If it’s not 20% is a good rule of thumb to aim for.

Why? Because a dude called Pareto a long time ago did a bunch of statistical analysis and discovered that commonly about 80% of the effects come from 20% of the causes.

Many peeps in the Financial Independence community, like myself aim for 50% and some lunatics even reach as high as 80%.

The important thing is to start and 20% is an achievable goal for most and the recommended amount to send to retirement savings.

As you start to flex your financial muscles aim to push past 20% to find more room for financing other goals.

Remember you´re paying yourself! The more you save the more opportunities you´ll have to reach your goal be it to retire early, reduce your work hours, travel, whatever it may be!

Negotiate with your bank.

Don´t be scared to talk to your bank.

If your hairdresser made a cat´s dinner out of your hair you´d complain right? Same thing here, banks offer a service like any another company and you have the right to voice your concerns over your treatment.

The terms of your financial agreements with your bank entity are not set in stone and they are negotiable. You´ll sleep better at night knowing you have the best possible terms available to you.

Here´s a couple of things to look into.

Check all your interest rates and try to improve on them

Do you know the interest rate for each credit card you have? What about your car loan? Mortgage?

Before negotiating your terms pay a visit to several other banks and find out what they could offer.

When I started on my Financial Journey I did my research then called our bank manager and asked for the interest rate on our mortgage to be lowered. It took some threatening to leave the bank but in the end they agreed. At no charge our mortgage rate was lowered from 2,25% to 1,25%.

Doesn´t sound like much?

A made a little diagram, below, to illustrate just what a huge difference even 1% can make in a person´s financial life.

A mortgage of $300,000 repaid over 20 years would result in just under $37,000 more being paid with an interest of 4% as opposed to 3%!

That´s bananas!!!! For one phone call you could save thousandsI

Check for hidden or not so hidden fees and charges

Do you check your bank statement?

Maybe you didn´t realize you were getting charged every time you used a non-network ATM? Or could there be a forgotten service or APP you signed up to that has been charging you without you realizing?

A quick check of each monthly statement can save you the pennies as well as having the additional benefit of bringing awareness to your spending.

Negotiate non-bank charges

Banks are not the only entity to check your charges with.

It can pay off big time to go through all your monthly expenses and check where you can cut costs. A one-time negotiation can have a massive long term pay off.

Internet, mobile phone contract, car insurance, home entertainment package, gym membership can all be negotiated.

Of course, only once you’ve evaluated if you actually need them at all! 

Try some conscious living

You don’t need to line item every purchase to be aware of where your money’s going. 

Allow yourself a moment of awareness every time you spend money. You don’t need to write it down anywhere or use an app just notice your sending.

Maybe you’ll see things you didn’t before, how often you eat out, how much you spend on clothes. It´s not about cutting out all expenses but making conscious choices. Where and how we spend our money should be a reflection of your values.

If you meet a friend once a month for cocktails and a nice dinner is it the fancy meal that brings you joy or the company of friends? Maybe on reflection you´re a huge foodie and the meal itself is a highlight in your month. Or maybe you´d be just as happy hanging at home with friends over a home-cooked meal.

Developing spending awareness is a development of self awareness and it´s key as you work on improving your finances.
 
There are thousands of blog posts in the Personal Finance community telling you what you should not spend money on. These choices need to be made by you so they correlate to your values and no one elses.
 
The three day rule. Try waiting three days before you make a purchase you want. It will squash the instant gratification that comes from impulse buying and you´ll know it´s a purchase you truly value.
 
Compare prices. Check for coupons and offers on items you use all the time, and if you find a good deal, buy it in bulk. Compare prices online and consider buying brand new items as a last resort as beautiful illustrated here by Sarah Lazarovic in the Buyerachy of Needs.

Open subsections within your bank account

Saving money into one big bucket can be confusing when you´re saving for several different goals and can give you a false sense of having loads of cash.

Most online banking apps allow you to open up subsections within your account where you can divide your savings into different goals to see very clearly how far along you are with each goal.

Name each individual account or subsection with the goal as its title “apartment down payment”, “round the world trip”, “llama farm”…

Invest the rest

Allow your money to help you make money! Invest your income so that it grows on it´s own while you get on with the more important task of living your life.

Anyone who wants to greatly improve their financial situation should learn about the awesome, magical powers of Compound Interest.

Before investing you should talk to a certified financial advisor and make sure your money house is in order. Once you´re clear of this you can put your money to work with simple, low-fee index funds.

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