Alternatives to Budgeting

Budgeting can be a useful exercise, but most people have neither the time nor the inclination to prepare a household budget. The purpose of a budget is to motivate you to live beneath your means, that is, to spend less than you earn. Of course, even a well-prepared budget is of no use unless you are prepared to live within its strictures. But there is another way to spend less than you earn without going through the drudgery of budgeting. All you need is an investment or savings account.

  • Workplace retirement savings plans. If your employer offers a retirement savings plan, like a 401(k) or a 403(b), then by all means start there. If the employer offers a match, all the better, but even if not, contributions to these plans are, in effect, tax deductible.
  • Regular contributions to an IRA account. After contributions to workplace plans, transferring money into an IRA account (and, if you have income from self-employment, a self-employed retirement plan) is next in order of priority. The investment company will be happy to hit up your checking account every week or month and put the money into your IRA account. That's a lot easier than trying to come up with a few thousand dollars to fund an IRA contribution all at once.
  • Plain old savings. With your instructions, any bank, credit union, or investment company will happily withdraw some money from your checking account or, if allowable, your paycheck and place it in an investment or savings account. Automatic investing is a great way to both begin and stick with a regular savings program.

Having money electronically transferred from your paycheck or bank account to an investment account removes it from any financial temptations that might arise. The result is relatively painless budgeting. Since you never get your hands on the money, it shouldn't be missed, particularly if you start small and gradually increase the amount that's transferred. If you manage to put away a meaningful percentage of your gross – in the realm of 10 to 20% – you may not need to prepare a household budget.