Hate Budgeting? How to Avoid Debt Without BudgetingJan 23, 2018
Debt tends to be a lingering problem, and it can feel especially overwhelming after the holiday season. But becoming debt free isn’t an impossible task — even if you hate budgeting.
If you’re looking for a method to bust your debt this year, here’s another way to think about money management, applying many of the same principles as budgeting.
For many young Canadians, budgeting can feel restrictive — like it doesn’t account for the unique or changing circumstances in their lives. Your goals might be universal — to save money, achieve financial security, and live comfortably — but your situation may require a more creative touch.
Don’t let difficulties with budgeting stop you from working towards your financial goals in 2018.
Budgeting is valuable
Let’s start by taking a step back. Budgeting is a valuable tool. Even if you haven’t found a budgeting method that you love (or have been able to stick with), don’t give up. More than ever, there are user-friendly and interesting (yes, really!) ways to create and manage a budget and keep consumer debt in check.
Think outside the budget
If budgeting hasn’t been as successful as you hoped, you shouldn’t give up on your debt relief or savings goals.
Instead, find other strategies to help you avoid and pay off consumer debt and increase your savings while you search for a money management method that works for you.
Here’s one thing you can try:
Pay yourself first
Danielle Kubes, a millennial financial blogger, takes a unique look at paying yourself first.
The way Kubes looks at the restrictions of budgeting may make a lot of sense to you if you’re in a transitional period in your life (going into or exiting university, starting your first job, taking on a new living/roommate situation, etc.).
Instead of assigning static amounts that you can spend on various categories in your life (groceries, entertainment, clothing, and so on), Kubes suggests working backwards.
Here’s her method: 1. determine your fixed expenses; 2. estimate your spending needs; 3. create your financial goals. Whatever is left over, is left over. If it mostly goes to coffee and groceries, that’s your prerogative.
Kubes suggests that it’s most important to know what you want to accomplish and make a detailed plan, rather than having a detailed plan about where each of your leftover pennies goes.
Set your goals
If you want relief from your student debt within five years, use a debt calculator to determine how much you need to pay off each month to achieve it. If you have credit card debt from the holidays or a vacation, you can use the same strategy.
If your goal is to save one million dollars in 30 years, determine how much you need to contribute monthly, at a certain growth rate, and ensure that contribution is made before you worry about what coffee you buy.
Don’t skimp on your savings. Retirement, investments, and emergency funds don’t grow themselves. Paying yourself is how you build your savings and secure your future.
Be flexible and aware
If your expenses change frequently, you can still meet your goals. Just be ready to modify your plans if your circumstances change. For example, what if your roommate moves out? That extra rent money needs to come from your monthly “slush fund”— your leftover spending money — not from your savings fund.
The specificity of a detailed budget can be frustrating for some people. When they find themselves outside the parameters of each category’s spending limit, they can get discouraged and throw financial management out the window. That can lead to overspending and taking on debt, rather than reducing it.
Manage your priorities
For some people, micro-managing debt repayment and savings can be easier, and more rewarding than using a formal budget.
Once you’ve covered your expenses and contributed to your goals, pat yourself on the back. Whatever money is left over is yours to manage for the month — without having to move $20 from transportation into groceries if your brand of yogurt increases in price, or feeling like a failure if you spent $10 more on lattes than you planned.
Kubes says that in time, the effect can be the same — you’ll manage your slush fund carefully and make smart financial choices (reducing debt and increasing savings).
By changing your mindset and paying yourself first, you can achieve your goals, and build your financial confidence at the same time. Make 2018 the year you find your financial management stride and reduce your debt.
Check out Danielle Kubes’ blog on paying yourself first in lieu of a strict budget.