Budgets Are Bullshit – Part 2 “The How”



Budgets don’t work for a simple reason – human nature.  Seriously.

I expounded on that in Budgets are Bullshit Part 1, but let me summarize:

They don’t work because few of us will take the time to gain the knowledge and build the data gathering, tracking, and monitoring systems required by a legitimate budget.  The time commitment alone is too much for most people.  Add the psychological weight of always telling yourself “no, you can’t buy this, you can’t do that” and – well, you know how that goes.

As long as humans are involved, budgets will continue to fail us.

Or, said more simply:  Budgets are bullshit.




The sooner we accept and move beyond this way of thinking the better off we’ll be.

So, what’s the alternative?  Beats me. That’s for you to figure out.

Okay, okay – joking of course.

There is a 
better way.

Yes, there is a better way than the traditional budget, but it’s not perfect.  It still requires some work on your part. You didn’t think you could get away with no work, did you?


Don’t start with the hardest, most complicated thing.  Start with something simple and easy. Then grow into it.

Budgets sound simple and easy.  And, if your definition of a budget is filling in predetermined categories on a piece of paper that has no ties to reality then, yes, it’s quite easy.  Carry on if that’s your objective.

But, if your objective is to use a budget as a meaningful financial tool to help you accomplish the important things in your life, then creating a budget is decidedly not simple and not easy.  Read Part 1 of Budgets are Bullshit here for more.

The constructive part of traditional budgeting requires us to be aware of where our money goes.  Knowing how/where we spend our money is a critical component to smart money management. However, we don’t need to know where all of our money goes.


Your Budget Solution

I don’t believe in budgets but that doesn’t mean it’s all bad.  We want to harness the good parts of classic budgeting and eliminate the rest.

This system does just that.

It’s best explained via an example.

Think of your income and spending in terms of buckets.  We only need to concern ourselves with 4-5 buckets, not the dozens of spending categories you see in traditional budgets.


Bucket A – Take-home pay.  The first and most important part of the system is knowing how much your monthly take-home pay is.  In this example, your take-home pay is $4,000.

    • Take-home pay – $4,000


Bucket B – Regular monthly expenses.  These are expenses you have to pay every month with most of them being the same amount each month.

    •  Regular monthly expenses – $2,000
      • Mortgage/rent/2nd mortgage/Home equity line of credit
      • Auto loans/leases
      • Credit card payments if carrying a balance.  Do NOT include if you pay the balance in full.
      • Insurances – all non-work-related
      • Utilities (it’s okay to use an average)
      • Other regular monthly expenses – daycare, alimony, gym membership


Bucket C – Monthly savings.  While not an actual “expense,” it’s still a cash flow item.  The most effective savings plans are monthly and automated. Note: workplace savings, such as 401k’s, are NOT included here.

    • Regular monthly savings/investing – $300
      • College savings
      • Retirement savings (outside of work)
      • Emergency fund


Bucket D – Regular non-monthly expenses.   These expenses occur regularly but not monthly such as travel or “Christmas.”  Best tactic is to turn these variable expenses into a recurring monthly expense.  In this example, you spend $4,800 per year or $400 per month.

    • Regular non-monthly expenses – $400
      • Travel
      • Holidays (i.e. Christmas)
      • Insurances (if paid annually, semiannually, etc.)
      • Gift giving


Bucket E – Lifestyle expenses.  The last bucket is for all remaining monthly expenses.  To get to this number you subtract buckets B, C, and D from bucket A.  $4,000 (A) – $2,000 (B) – $300 (C) – $400 (D) = $1,300 (E)

After paying your regular monthly expenses (B), saving for future goals (C), and setting aside money for regular non-monthly expenses (D) you have $1,300 for lifestyle spending (E).

    • Lifestyle Spending or “Everything Else” – $1,300
      • Groceries
      • Auto: gas, oil changes
      • Entertainment
      • Dining out
      • Health and fitness
      • Personal care



True, there are elements of traditional budgeting in this system.  We kept the parts that work and got rid of the parts that don’t.




Knowing where some of your money is going is important to both systems.  You need to know how much money you make, what your regular financial obligations are, and if you want to save for future financial needs.

However, this system does NOT require you to make future projections or track your everyday spending.  It doesn’t put restrictions on how you spend your money or live your life either. It doesn’t wage psychological warfare on you by reminding you at every turn how little you get to spend.

Let’s dig into this a bit further to illustrate the differences.


Buckets A, B, and C are super easy to calculate.

    1. To get your take-home pay you just need to look at your pay stubs
    2. You get monthly bills/invoices for your mortgage, car payments, credit cards, and other regular monthly expenses or they are readily available online
    3. Savings is a voluntary process which means you know exactly how much you’re saving

Getting accurate data quickly is incredibly important and this system does just that.

Doing so for bucket D is a little harder to come by.  This is the first real “budget” item and it’s subject to the same flaws as traditional budgeting.  Namely, you have to guess how much you want to spend in each category.

There’s no way around this so don’t overthink it.  Estimate how much you spend in these categories each year and divide that number by 12 to turn it into a monthly number.  Then, save this amount into a separate account until needed.

Once you get buckets B, C, and D out of the way ($2,700 in our example), you’re left with bucket E ($4,000 – $2,700 = $1,300).  This $1,300 is the maximum amount you can spend on all other items (assuming you don’t go into credit card debt – which you shouldn’t).

Traditional budgets would have you line item this $1,300 and track how much you’re spending in each category.  But, do you really need a line item budget for this $1,300? Is it realistic?

No.  It’s not needed nor is it realistic.

Look, no one spends the same amount of money each month on groceries, gas, dining out, entertainment, etc.  No one. So, why are we tracking it as if it matters?


Here’s what actually works.

First, per our example, fughettabout the first $2,700 of your take-home pay because it’s already accounted for.  You only need to concern yourself with the remaining $1,300 which is where all of the action is.

Now, how do we handle the $1,300?

Truth is, who knows; it’s different every month.  You figure it out as you go along. You figure it out every month in real-time because that’s how we live our lives.




You don’t need a budget to tell you you have to buy groceries or put gas in your car.  And you’re not going to give up your morning Starbucks, and the delicious dessert that occasionally accompanies it, just because you’ve hit your “dining out” number.

The beauty of this system is that you don’t need to have a plan for every one of your $1,300 lifestyle dollars.  You start the month knowing you have $1,300 to spend on living your life and you will automatically choose how best to spend that $1,300 without a budget getting in the way.  And if it’s the 20th of the month and you’ve already gone through your $1,300, you’re done spending for the month.

“Yeah right, Ed.  If it’s the 20th of the month and I’ve already gone through my $1,300, I’m gonna spend more money.  Who are you kidding?”

True, you probably would spend more money.  At least at the start. In the early stages of implementing this system, you’re likely to mess things up as you work through the learning curve.  This is perfectly normal as most of us don’t really know where we spend our money.

But, if you give this method a little time to run, you’ll naturally settle into a spending pattern that works for you.  You’ll quickly cut out spending on things that aren’t important and focus your spending on the important things in your life.

And you know what you won’t do?  You won’t waste a bunch of time putting together an unrealistic budget and obsessing over every dollar you spend.  You won’t get frustrated at how suffocated you feel because you can’t spend more money on dining out this month just because your damn budget said so.




The point is you will organically make different spending decisions because you have the freedom to do so.  

Some months you’ll spend more money on entertainment because your favorite band is coming to town.  Another month you’ll drop more money than usual on gifts or dining out or whatever. It’s a dynamic, fluid process because THAT’S LIFE.

Budgets are static, confining, require a lot of time and attention to detail and a commitment almost no one is willing to make.  Do yourself a favor, test out the new system, and free yourself from the classic budget bullshit.