Why Budgeting is a Bad Idea

Posted in Money Tips
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

budgeting-bad-ideaOne of the most common New Year’s resolutions is to make a budget and stick to it. This year, I have some advice for you:

Don’t bother.

Budgets are like diets: they are hard to do, and after a week, or a month, you give up, because it’s too difficult. Think about it: are you really going to carry a pencil and paper with you and write down every penny you spend? Will you write down each cup of coffee you buy at the coffee shop? Will you go home every night and punch the numbers into your computer, and then create graphs and spreadsheets to analyze everything?

Perhaps you will. But to successfully manage a budget you need to be very disciplined. You need to stick to it. If you are very disciplined, great. There are some great tools that you can use to help you make a successful budget. Calendar Budget is an on-line program that makes it simple to track your spending; they even offer a free trial. You can go to our personal budgeting page and download an Excel Spreadsheet Budget Planning Worksheet if you want to do it yourself.

But what if you are not highly disciplined? What if you don’t know how to work a spreadsheet, or if you don’t have time to record every penny you spend? I have a solution:

Instead of budgeting, pay your bills as often as you get paid.

That’s it. That’s the system. Here’s how it works:

If you get paid bi-weekly, pay your bills every two weeks, on payday. Here’s an example:

You get paid on January 13 and January 27, and your hydro bill is due on the 30th of every month. So this month your plan is to use $100 from your January 27 paycheque to pay your hydro bill. That makes sense, but your rent is due on February 1, and your car insurance is due on February 2, so you know your paycheque won’t last that long. Here’s a better plan:

Use internet banking to pre-program a $50 payment, every payday, to hydro. Do it now, for the next six months. Then, every payday, $50 gets automatically sent to hydro. If you send $50 on January 13 and $50 on January 27, by January 30 you hydro bill is paid. No worries.

Even better, in May you get three paycheques, on June 1, 15 and 29, so in June hydro will get three payments from you. By the end of June you will be $50 ahead with hydro.

Think about that: You will be ahead on your bills. Instead of always “playing catch up”, you can get ahead and stay ahead.

To find out more, read our special report on the Secret to Personal Budgeting. It’s easy. Don’t budget, just pay your bills as often as you get paid.