Budgeting is usually one of key recommendations to help people set and achieve financial goals. I don’t have a budget in the strict sense of the word. Meaning, I don’t have a target amount of spending per category that I manage and aim to achieve on a regular basis. I have never maintained a budget and I manage to achieve my financial goals with less effort and hand wrangling. I believe budgeting is counter-productive and shifts my attention to a monthly goal and micromanaging small details instead of the big picture. There is a better way!
I don’t keep a budget, however, our family spending, financial health, and financial achievements are in good order. There are 3 legs to our family financial strategy. Each provides an important pillar to our family's financial stability.
- Principled spending
- Trust but verify
- Annual family meeting
Principled spending
My guideline for family various spending categories or a large purchase, should be able to answer these questions for principled spending.
- Essential: Is spending a need or a want?
- Durable: Is this spending a durable value with long term benefits?
- Quality: Is this spending a good trade off for time to help achieve more important tasks?
- Opportunity: Is there a better use of this money in the future / what is the opportunity cost?
We all should develop the habit of intentional spending. This is not to question every dollar spent, but as a whole, ask if we are using money as an effective tool to enrich and live our best selves.
Trust but verify
I trust the family to make good spending decisions using their sole discretion. I verify their decision and have “calibration” chats to seek alignment on guidelines. I track all the family spending on a daily / weekly basis. This is by choice, and now a deeply ingrained habit after nearly 30 years of tracking expenses on Quicken. I occasionally ask about a particular purpose that doesn’t match existing / known patterns. I also regularly analyze the spending pattern against the predicted pattern. In that sense, I have a budget of expected spending by categories. I make predictions at the beginning of each year and set an end of year target of expected expenses. This is a forecast and not a budget. I’m not micromanaging our expenses to these targets. It’s an efficient way to understand shifts in spending behaviors and have a productive conversation about those shifts. Most of the time, it’s only a shift earlier or later on an expense. The balance will naturally realign in a few months. Sometimes, a big unexpected expense happens. Other times, it is lifestyle inflation. Which bring us to the next pillar of financial stability
Annual family meeting
We started this a few years ago, when we wanted to have a more meaningful discussion with the kids on the topic of family finance. What are the different sources of money? Where and how much are we spending? What are our top 5 categories of spending, and why do we value those things? What are ways to make better choices and improve intentional spending? Our top 5 categories from the highest first: education, vacation, auto, mortgage, and taxes. We had a good discussion about living our values and how we spend our time and money.
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