How to avoid budgeting

Almost all of my financial organization is predicated around one core principal: I never want to draft a budget.

How you handle money is intensely personal -- and I, personally, have always chafed against the idea of drawing up strict categories like "books," "food," "clothes," etc. and trying to first anticipate, and then stick with, planned expenditures. My expenses swing wildly around. One month I'll go through $300 buying new pants and blouses, and then I'll go six months spending nothing on clothes. One week I'll eat out a lot and spend less than $20 on groceries; the next I'll drop $100 at the store and cook for four days straight.

These decisions are generally impulsive. I could be more disciplined about deciding in advance what my near-term priorities will be. I could sit down at the beginning of the month, decide that I need new clothes, and write up a nice, detailed budget allocating money for that. Or I can do as I've always done and shuffle financial priories on the fly.

What makes my system workable for me is my ability to mentally subdivide and track my expenses in two categories: fixed expenses and 'slush fund money.' A few weeks back, a friend pointed out Stackbacks, a budgeting system that works on this principal. The Stackbacks wrinkle is that its creator hit on the idea of physically separating these two categories. He suggests setting up two checking accounts. Calculate your monthly fixed expenses (like rent, cell phone bill, utilities, car payments, planned savings, etc), and from each paycheck, immediately transfer the money needed to cover them into your fixed-expenses account. Set up automatic payments for those bills so that the money reliably withdraws on schedule. Then, your other checking account becomes your slush account. Use the money on the fly for whatever you need, but when it's gone, it's gone. The advantage of the Stackbacks system is that it protects fixed money for the essentials: you won’t accidentally spend the rent money because your landlord was slow clearing the check.

I can see the appeal for people who don't keep detailed checking-account records and have trouble tracking what money in their account is 'available' and what isn't. My mental categorization essentially works the Stackbacks way, and has ever since I got my first paychecks, except that I don't physically maintain two separate accounts. I use PocketMoney to track expenses on my Palm (that'll be its own post ...) , and I'm religious about noting down every single debit or ATM withdrawal. When I get paychecks, I immediately deduct rent, monthly bills, etc from my PocketMoney register --- and once the money is gone there, my brain treats it as truly gone, even if it takes days or weeks longer to actually move out of my checking account. This works fine for me because I don't mind paying close attention to my checking-account debits. It would stress me more not to. For those who hate such meticulous record-keeping, the Stackbacks system seems an interesting idea.

With one big caveat: On-the-fly spending is likely to lead to impulsive spending. I know that it does with me. If a new cheese catches my eye at the grocery and I have a reasonable amount of slush to tide me over to my next paycheck, I'll drop $10 on the cheese. Same with clothes, books, whatnot. If I planned my expenditures in advance and, say, set a cheese budget, I'm pretty sure I would spend less.

But the caveat to the caveat is that money is only useful for what it buys -- and for me, I've made the decision that indulging in such impulsive budgeting is more valuable than the $100 a month or whatnot I could save through better planning. It's the personal-finance writer's chestnut to point out how much little things add up. With that $2 a day you spend on coffee, they cluck, you could instead bring coffee from home and put an extra $400 a year to work in your 401k, or save for that big vacation ...

But, dammit, I like my coffees, deli lunchs, throwaway magazines and other fripperies. I like them enough to forego a few hundred (or even a few thousand) extra each year toward bigger, grander goals. My long-term savings isn't terribly impressive, but it's not awful, either, and I comfortably meet all my basic obligations each month. Part of why I go to work each day is so that I can earn enough money to not have to watch every penny. It's a luxury I'm willing to pay a high price to enjoy.