Finding the right way to budget and hold yourself accountable can be difficult. We all have different jobs, lifestyles, and financial commitments that make trying to apply a cookie-cutter method of budgeting nearly impossible. One method that works for one person, like meticulously maintaining an Excel spreadsheet with everything you spend, won’t work for someone who gets stressed out by the idea of just checking their bank account balance. Trying to force one method of budgeting on another person can (and usually) results in nothing but stress. This makes it important to highlight that there are several ways to budget and maintain a financially fit lifestyle, which brings me to this blog post.
This post is the second in a two part series where I compare my “hands-on” approach to budgeting versus my fiancé, Jesse’s, “hands-off” style. Since I already shared my “hands-on” take on budgeting, I thought it would only be fair that Jesse finally gets his turn.
Revisiting “hands-on” vs. “hands-off”
For those of you that didn’t read my first ever blog, my fiancé Jesse and I have polar opposite money management styles. I’m what you’d call “hands-on.” I check my bank accounts almost daily, make very detailed budgets that I constantly track, and overall feel calm and in control when I know where my money is going. Jesse is what you’d call “hands-off.” He hates dealing with money and would rather watch paint dry than sit down with me to plan out a meticulous yearly budget. It’s not that he doesn’t care about money, it’s that he doesn’t want to spend any of his time managing it! To get around this, he automates everything to minimize the amount of effort he puts into thinking about his money.
While the principles guiding what we do and our long term financial goals are similar, how we get there is quite different–and that’s okay!
Jesse’s take: a hands-off budgeting approach:
- Start with what’s possible (i.e. your income): Jesse’s income still limits what he can do with his money. Whether you’re hands-on or hands-off, there’s no avoiding this one. He starts with his monthly income. This gives him an idea of what he could realistically contribute to his different financial obligations and goals each month.
- Separate accounts for separate goals: Jesse doesn’t want to spend his time worrying about whether buying a few extra cups of coffee will get in the way of achieving his financial goals. To avoid this, he opens up separate checking, savings, or retirement accounts for each of his goals. This way, the money for each goal is separated from his daily spending and he can live his life without worrying about every little detail of his spending. The type of account he uses depends on the goal. For his retirement savings, he uses a 401k or IRA. When he’s saving for a medium term goal like starting his own business, he uses a high yield savings account. For short term goals where he will want easier access to cash, like buying a festival ticket, he uses checking accounts. From here, Jesse thinks about how much money each goal requires and calculates how much he would need to set aside per month to reach the goal by its target date.
- Automate, automate, automate: Jesse wants to make sure that he doesn’t have time to even consider spending the money he wants to put towards his goals on something else. He knows that leaving all of his money in one place for too long makes it too easy for him to spend without thinking. To avoid this, he automates everything he can, from bill pay to savings. This way, he can enjoy doing what he loves instead of focusing on staying on a specific budget (I still don’t get how he’s okay with this). For example, he has the target amounts for his long term goals direct deposited each paycheck into their respective accounts. For his bills and other timed payments, he sets up regular automatic transfers into each separate account as well. Most of this is already going to be in place from the last year. All new recurring bills are immediately set up on auto-pay. While this means putting in some more effort up front, he can avoid annoying reminders later.
- Spend how you want, but set up guard rails: The remaining money stays in his normal checking account (what he calls his egress account). He uses the money in his egress account to pay for his everyday spending and smaller things like going out to eat or catching a local concert. Since the money he needs for his goals and required payments is already pushed into other accounts, Jesse doesn’t worry about exactly how he spends this money To make sure he doesn’t overdraft, however, he sets up triggers that will alert him if the account’s funds fall below a certain threshold. This allows him to adjust his spending and avoid overdrafts.
- Check in and adjust as your lifestyle changes: Every few months, Jesse looks at how his spending and savings is going, particularly if he has had multiple low-funds alerts in a row or if his lifestyle drastically changes (like when he went from full-time employment to freelance contracting). In these cases, he will readjust the amounts on his automatic transfers and reassess his goals. Once this is done, it’s back to kicking back and relaxing while his money works for him.
Finding a budgeting method that works for you
Similarly to what I said in my last post, Jesse’s approach may not work for everyone–not even if you are “hands-off.” What’s important is that you find the right method and tools that work for you, which takes practice and time–so don’t worry!
Regardless of your money management style, I hope that sharing my and Jesse’s approaches to creating and following a budget can help provide you with tips that make managing your money easier!
If you want to learn more about how Varo is trying to make managing money easier, regardless of if you’re “hands-on” or “hands-off,” you can sign up for our early access to our waitlist here.