The following is an article “Save Up By Doing the ‘No-Budget’ Method” by Marc Primo.
Previously, we discussed how a zero-based budget can work wonders for you, especially if you are paying off debt or on your way towards your financial target. This time, we’ll discuss a similar savings method that’s perfect for those who aren’t into budgeting but have extra cash by end of the month after all expenses have been paid. By knowing how much you earn and how much you have to pay in a month, you can save up with the least effort possible via the ‘no-budget’ method.
First, let’s understand the difference between a zero-based budget method and a ‘no-budget’ method.
A zero-based budget is a savings plan wherein your monthly income should be equal to all monetary allocations you have set up within a month. These include utility bills, savings, groceries, allowances, and such others.
Meanwhile, a ‘no-budget’ budget practices the same concept but instead of leveling your monthly salary with your expenses, you compare what you make to what you have to pay. If you can spare some extra money after all your payments, then you can do the ‘no-budget’ method. Otherwise, you’ll first have to either earn more money or do some budget cuts.
Below is a step-by-step process on how to do the ‘no-budget’ method effectively.
Make a list. Step one is to list down all of your regular expenses that you have to pay for in a month. The list should include all the essentials that you can’t do without. If your way of relaxing during the evenings is to binge-watch your favorite shows, then count your Netflix subscription in. If your Friday night comfort food is pizza, then list that down too. Make sure that everything you list down is an essential expense that you have to pay-off every month.
Calculate what you make. The next step is easy. Just add up all your net pay from work and other sources of income then determine the exact amount. If you have a business, this can be tricky as the influx of profit can vary. If this is the case, just set a workable average of what you can earn within a month and assign a contingency amount that can cover your monthly expense list should you experience a low turnout the following month.
Do the math. Now that you have summed up your monthly expenses and earnings, subtract your expense list to your total income. If you’re left with a positive number, then you can proceed in drawing up a plan to save money. An acceptable method is to put at least half of your extra money in your savings account. Unfortunately, if your monthly expenses are bigger than what you earn, then that means that you have to pay something off first, or cut down on your monthly expenses before you can save.
Save some for fun. If you are wondering where the other half of your remaining money goes to after putting the other half into your savings account, then welcome to the fun part of the ‘no-budget’ method. Maintaining a realistic outlook on your savings method means that you likewise have to set aside some money for leisure without the guilt of having to spend. Besides, it won’t do you any good if it feels like you’re depriving yourself of well-earned rewards just to save a few bucks.
For those who want to try out the ‘no-budget’ method, it would be more advisable to withdraw all your earnings in cash and open another bank account for savings. That way, you can physically divide your money according to your expense list, and separate your extra cash for savings and leisure more easily.