How to save without budgets?
Did you know, when looking for ways to save, budgets don’t work? So how do we save without budgets?
Today I will set you free from the guilt of never meeting your budgets.
We are going to cover why they don’t work, and give you tips on how to save without budgets, including,
- Getting realistic about your spending,
- Controlling your spending without budgets,
- Using a commitment to save,
- Tracking your spending without fear.
A Quick Confession!
Before we begin, I will make a confession. Having been in the finance industry for many years (I won’t say how many!!), I have always been in the budgeting camp. I recommended clients make budgets, to help them achieve financial goals.
But having stepped back and looked at people’s behaviour; I can see why budgets don’t work as well as we want them to.
I am disciplined with money, and I have always tried to set budgets to control spending and save.
I have however felt frustrated, chasing my tail, trying to create realistic targets, only to run right past them.
The only budgets I get 100% correct, are the bills that don’t change!
For the other items like groceries, eating out, and discretionary spending, the actual amount never aligns, and the budget doesn’t act as a deterrent either.
So, imagine my delight to learn that I am not failing with my money, I am just human. Budgets seem like a good idea but don’t move us materially closer to our goals.
The Science behind budgets
Research was done by Duke University Common Cents Lab.
- 9035 people were randomly chosen to use a fintech app to create a budget.
- Does budgeting reduce spending?
- Findings – no.
- Generally, budgets were overly optimistic,
- There were no positive or negative impacts from budgeting.
Tracking Spending Does Work
There is a but I am afraid. While making a long wish list of amounts you wish you were spending but aren’t doesn’t work, knowing where the money goes, does.
Knowing what you spend and taking a more conscious approach to your spending, does help improve your financial situation.
If you have read my previous blog How to Control Your Money and Find Your Focus, you will already know that when you are in the driver’s seat, you are working from an ‘internal locus of control’.
This is a powerful position to be in.
Alternatively, if we float along hoping to spend less, save more and hope costs will come down, we leave the control in everyone else hands.
So, how do we save without budgets? Here are some top tips, to get you started.
Tip 1 – Get Realistic about your Spending
The main reason budgets don’t work is because most of the time they are unrealistic. Many of the numbers must be estimated or we pick averages to make life easier.
We go into the process, expecting to spend less, be less busy, and be more disciplined.
Life doesn’t work that way and costs come at us from all directions.
Friends invite us out for a drink. We do our grocery shopping at lunchtime, so grab a ‘quick bite at the cafe. Work runs late, we get tired picking up the kids and drive right past a takeaway, or not!
Life isn’t linear, predictable, or easy to control.
What we need to do, is push our ideal self off the stool and instead get real about the money we spent this month and what is coming up next month.
Start with last month and ask..
- “How did we spend that money?”
- “What is coming up next month, that I need to allow for?”
Thinking about what might come up forces you to think ahead and allow for those bills before you let yourself spend the rest.
Acknowledging what you do anyway, requires you to be authentic about where the money goes.
Then you can adjust your behaviours and set intentions around the actions you are going to take, to control spending.
Tip 2. Control Your 'Today' Spending?
Millennials get a bad rap for succumbing to the temptation of ‘instant gratification.’
The truth is, all generations fall into this trap, to a greater or lesser extent.
We all overvalue today and discount the consequences this has for our future.
Yes, we should walk past the café, but we don’t because we are hungry and buying lunch is easy.
Going home and making lunch takes more self-discipline and energy. This doesn’t make us bad people or bad with money, just humans.
If you haven’t seen the Seinfeld video on Night Guy vs Day Guy, I highly recommend watching this on YouTube.
We can relate this concept beautifully to his skit.
Night guy says, go out, party, have dinner, put the costs on the credit card, and deal with the bill later. Day guy is left with the bill.
The only problem is, we are both night and day guy. The only way for day guy to quell night guys habits is to take away his allowance!
Seinfeld – Night Guy vs Morning Guy – Bing video
We need a way to control our ‘today’ spending.
Take your income, and deduct all the bills you must pay, otherwise, you will lose your furniture!
The remaining amount is the ‘I can spend this’ amount.
Allocate that out to groceries, eating out etc.
Some people use separate bank accounts. There is nothing wrong with that if the system works.
If you choose to spend more on groceries, sorry there is less or maybe none left for eating out.
Lower limits on credit cards.
I use a personal allowance approach.
My husband and I get a weekly allowance for us to spend however we want. But we cannot dip back into the joint bill’s money. If you spend all the money on day one, that is all there is.
You can feel sorry for the hubby too as we haven’t had a pay raise for inflation… sorry dear!
This concept leads nicely into…..
Tip 3. Use Pre-commitment to save.
Most of us don’t like breaking promises to ourselves because we feel like we are letting the side down.
This can be a strong emotion to help us achieve our goals. By pre-committing to saving money, we give ourselves no other option, but to follow through.
KiwiSaver is an example of this.
There is no reason we can’t mimic this concept for other areas of savings. The easiest way is to set up an automatic payment, which goes out the same day you get paid your salary or wage.
What you cannot see, you cannot touch!
The idea is to put a pause between your money and the decision. If you must move money to buy a new car, you give yourself time to ask, “Is this what I really want?” “Am I making the best use of this money?”
You can also save money you don’t have yet. For instance, a bonus or tax refund.
Create a pre-commitment statement on what you will do with any tax refund this year, dividend from the power company, or bonus from work.
Ask a friend to text you on the day you receive the cash, so you can tell them how you saved the money.
The chances of you saving the money are now a lot higher.
Tip 4. Turn Fear into Power
At the beginning of every new month, I review my spending for the last month and make plans for how I want to spend next month.
Every month without fail, I get a small set of butterfly’s, dancing around in my stomach, fearful that I have not achieved the goals I wanted.
You can’t control everything and there are always costs that come up each month, so you are never going to know where every dollar went.
No matter how ‘good’ we have been, the butterflies still appear.
We simply don’t like bad news, especially when we can’t change the outcome.
Reviewing last month’s money is historical good or bad news, that I can’t change.
So, why do I torment myself each month?
The not knowing is worse than the knowing.
Once I know, I can change and I can make improvements, even if they are just small.
I can try and be better and I know where the focus needs to go.
If I stumble blindly along, hoping to spend less and save more, I may as well try and ‘shoot fish in a barrel’.
I feel empowered by the process and while at times I cringe, tell myself off, and wish I hadn’t spent the money I did; I still face the music at the end of the month.
We will be fearful of the outcome, but we should use that to drive us to find better ways to work with our money.
Final Words
I hope I have demonstrated that we can save without budgets.
We can leave arbitrary estimations and averages in the past and look to our behaviours for answers.
Let’s summarise those top tips.
- Identify the costs coming up next month and allow for those first,
- Look at how you spent the money and the habits which lead to spending more than you wanted to,
- Realise that the present means more to us than the future, so distance money from yourself, so there is less to spend today,
- Make commitments to yourself that you will feel bad about breaking,
- Find out where the money goes, even if this initially freaks you out to do so.
- Do something positive with that knowledge.
- Make small changes that give you real results.
The concepts discussed in this blog, come from behavioural science, specifically Optimism Bias, Present Bias, Pre-commitment, and Information Aversions. For more information visit Common Cents Lab
If you want to read my previous blogs, click here.
Setting Goals is Easy, but Achieving them is Hard
How to save money, a Savings Success Formula
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Article by Kim Gabites (Inside My Money Founder)
Inside My Money is an online financial learning hub, that provides courses, resources, and tools to help increase financial confidence and capability.