Hate budgeting? Try these spending strategies

Did your last attempt at a spending plan fail to take hold? Understanding why can help you find a system that works.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Ismat Sarah Mangla, Money Magazine

chart_budget.gif

(Money Magazine) -- Constant news of layoffs, pay cuts, and stock declines has all of us tightening our belts: A recent Money poll found that in light of the financial crisis, 89% of us are changing the way we manage our finances, and 88% plan to be more frugal.

In theory, the best tool to achieve both purposes would be - shudder - a family budget. Put that on the to-do list right after dieting and making an appointment with the dentist.

Oh, sure, we all have friends who are addicted to Quicken, and bully for them. But for a lot of us, using traditional budgeting tools is like "trying to fit a round peg in a square hole," says Bill Starnes, a financial planner in Hockessin, Del. And any pre-schooler knows how well that works.

So how can the less obsessive - er, organized - among us better manage our money? Below are some alternative methods that achieve the same goals as a traditional budget (that is, to live within your means and meet your savings target). To find the plan that will work for you, think back to why your last budget failed - or why you never started one in the first place.

If you hated the work involved, try ...

THE BUCKET BUDGET

How it works: You'll need three bank accounts - two checking, one high-yield savings. First, figure out how much of every paycheck you want to put toward savings. Have that automatically sent to the savings account, which serves as a future-goals way station; you can redirect it later.

Send the rest of your paycheck to checking account No. 1. (Talk to your payroll department to set up multiple direct deposits.) From this you'll pay monthly fixed expenses, such as mortgage and utilities; set up automatic bill payment online.

Figure out your monthly surplus in this account after recurring bills, divide by four, and set up a weekly automatic transfer for that amount to checking account No. 2. This is for variable expenses like groceries, entertainment, and eating out. Two rules: You can't transfer more money over until the next week, and you can't use credit cards.

Why it'll work for you: "This gets you away from micromanaging," says financial planner Eric Kies, who helped develop this system, called First Step Cash Management. In fact, it basically manages itself; all you have to do is watch your balance on the second checking account. The system creates "artificial scarcity," forcing you to live on less and within hard boundaries.

If you quickly lost interest, try ...

THE BUDGET BOOT CAMP

How it works: This will require one intense weekend - but just one weekend. Pull out your bank and credit card statements for the past three months, and make a list of your recurring expenses and the amounts.

Now instead of budgeting per se, you're going to pick one or two large line items to cut to meet your budgetary goals. This might be painful, but consider the end result: The thousands you'll save by, say, getting rid of the second car - and the insurance, fuel, and maintenance bills that come with it - may make carpooling more palatable. Plus, making one big sacrifice means you don't have to think about budgeting again till next year.

Why it'll work for you: Unlike the tedious routine of a traditional budget, this slash-and-burn tactic offers no room for boredom, says financial planner Mary Claire Allvine. Short-attention-span folks can pour a lot of energy in upfront and start seeing results fast.

If you struggled with self-control, try ...

THE STICK STRATEGY

How it works: You'll need to choose a "referee," someone whom you trust to hold you accountable for sticking to your spending or saving goal and who will be willing to monitor your progress. Make a contract with this person via Stickk.com, a site that uses financial punishments to hold you to your word. State the goal, make a schedule of checkups, and choose a small fee you'll pay if you fail. You can have this money go to the ref, a charity, or even an "anti-charity" - say, the Democratic Party if you're a Republican.

Why it'll work for you: Just as the threat of the boss's ire can help you get a project done at work, the threat of punishment can help hold you to a savings goal, behavioral economists have found. "It's all about making success cheaper and failure more expensive," says Dean Karlan, an economics professor at Yale and founder of Stickk.com. "Even having to face someone with failure is a social cost."  To top of page

Send feedback to Money Magazine
Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.