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Sorry to break it to you, but the traditional budget is old news…
I’ll admit, a budget is a great tool for controlling your finances if your spending is wildly out of control. However, the traditional budget pales in comparison to the all-powerful “Un-Budget”. Are you ready to unlock a savings superpower?
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Problems with the Traditional Budget
Most traditional budgets are broken into several categories with monthly spending caps for each. See the example below.
| Rent | $1,000 |
| Groceries | $400 |
| Utilities | $300 |
| Entertainment | $100 |
So… what’s wrong with this framework?
Well, the best way I can explain this is with a real-life example. Unfortunately, I have many examples because I know both family and friends who are deceived by the traditional budget!
John budgets $100 for entertainment spending every month. On July 28th, John has only spent $10 on entertainment. Awesome! Well, the weekend is approaching and John still has $90 left in his budget. What do you think happens next?
He finds a way to spend his remaining $90 because he’s already “spent” it in his mind!!!
This is the problem with the traditional budget. Once a certain dollar amount is allocated toward a specific category, it’s left for dead by the ruthless budgeter.
This financial framework is not actually helping your psychological spending problem. It’s only setting up speedbumps to slow down your spendy habits.
Setting Budgeting Goals
I feel completely justified bashing the traditional budget because I used to be John. As long as my pre-set “spending buckets” were reasonable, I could spend at will (as long as I didn’t spill over in any category, of course)!
If I only spent $90 of my $100 entertainment budget, I was a hero!!! Unfortunately, this was before I understood the Savings Paradox.
The traditional budget is just a crutch to evade the bigger question: How important are your financial goals?
The key is to align your values with a financial goal. If your mission is financial independence, every dollar leaving your wallet will sting tremendously. Setting a goal and shifting your mindset is paramount to graduating from the traditional budget.
Have you ever tried to count and limit your calorie intake? Usually, it lasts for several months before the aspiring dieter gives up. But why?
This form of dieting is to fitness as the traditional budget is to personal finance. It’s unsustainable because it lacks a shift in mindset!
What is an Un-Budget?
An Un-Budget flips the traditional budget on its head. Instead of allocating spending limits to certain categories or buckets, you set your spending limit to ZERO! Yes, you read that correctly… $0.
With this mentality, every expenditure you make must provide tremendous value. If it’s not a necessity or something that won’t bring you immense happiness … don’t buy it!
I have used this un-budgeting strategy for a few years now and my savings rate has gone through the roof! The reason why it’s so powerful is that this framework requires a complete financial mindset shift. You must align your core monetary mission with your spending habits.
Now, I know what you’re all thinking. You think I’m some frugal freak who eats ramen noodles every meal and lives in a cave. WRONG! I enjoy good food, partying, going to events, and so much more. I just do these things with intentionality. That is the key to this value-driven strategy.
Yes… I understand that the un-budget is not for everyone. If you know that you can’t trust yourself, stick with the traditional budget. But for those who want to unlock a savings superpower, try out the Un-Budget!
I’d love to hear your feedback and your own money saving strategies. Please share with the community in the comments below!
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Totally agree and I’ve never taken the time to think of it that way. Budgeting is allocating your money, even if you don’t need it. Un-budgeting allows you to simply change your mindset to make a purchase based on value. I remember in high school I made $5.25 an hour, I was frugal so I rarely bought anything, because I would think “That $50 video game is about 10 hours of my time and not worth it at all”. I had nothing budgeted because I had no money to budget with, so it just came down to whether or not I valued the purchase at the sale price.
Hey Brad! Thanks for reading and I’m glad this concept really resonated with you. This mindset/strategy is how I’m able to achieve such a high savings rate. My tolerance for spending money is so high that I must REALLY value the purchase to commit.
In college, I would also equate my purchases to things I valued… “This concert will cost 10 handles of vodka and I don’t even like the artist very much … definitely not worth it”… Lol. Hope you’re enjoying your amazing RV trip!
Hahaha man you really had your thinking in line 🙂 We are enjoying this little journey, don’t get me wrong it’s still life as we know it and with a 21 month old lol, admittedly life as we know it seems a little more exciting this way though!
I completely agree! Once I quit my nine-to-five (hopefully next summer) I definitely want to get some slow travel in, whether it be on U.S. soil or international. I think you’re doing it right man!
I completely agree! We just wrote a post very similar on our blog – I think that it’s much more important to spend money on things that you value and evaluate after the month-end whether your spending in one category or another is particularly high. Giving every dollar a name just doesn’t work any longer!
Thanks for stopping by, Yellow Brick Freedom! I’ll definitely have to check out your post. Aligning your values with your spending is so important. Repaving the mental road is so much more effective than setting up roadblocks 🙂
This piece speaks a difficult truth about budgeting. Our consumerism culture says we ought to allow ourself a certain amount of unnecessary frills. The problem with this thinking is that the opportunity cost of these expenses is too high. Any unnecessary expense translates to more time stuck in the office and less money invested working for us.
I recently had a discussion with a good friend that is struggling with debt. He would probably say that he doesn’t live too lavishly, but when I asked him how his spending habits might change if he were to lose his job, he was able to offer up plenty of places he would cut back. Less shopping at grocery stores that gobble your whole paycheck. Less fancy meals and gadgets. It may help some to consider how they would live if they lost their job and try to look at their expenses through that lens.
Recognizing your unnecessary expenses and then cutting them out completely takes some will power but will yield long term results that lead to FI.
Hey Rob, I really appreciate you dropping by! I really like your idea of “how would you live if you lost your job? What would you cut out of your life?” Makes sense that this is a topic that you’re passionate about!
It’s really the consumerism mindset that justifies our budget. We “deserve” to spend $100 on a restaurant dinner this week. We “deserve” to buy a vacation home. Fixing the mindset fixes the problem. Cutting unnecessary expenses out will supercharge the path to FI.
Dang Cody, busting my Wednesday article before it even hits… haha!
This makes a lot of sense if someone does have that mindset of the money already being spent. That was an interesting concept because I have never thought about my budget categories like that. If I budget $100 for something, my goal is to spend on $50 and then bank the other $50! Maybe that isn’t normal though?
But I do love the mindset of “My goal is to spend $0.00. You need to make a convincing argument to why I should spend any of it”. I think there are some areas that I could incorporate that train of thought for sure!
Yes it was definitely something I struggled with a little bit before I realized what was happening. I had already “spent” the money in my mind before it even left my wallet.
Using this value-driven approach has been huge in boosting my savings rate through the roof!