Liz Pulliam Weston: A formal budget: Who needs it?

The Basics

Is it time to dump your budget?

If you want to get your finances on track, a written plan is the way to go -- but you shouldn't have to do it forever. Here's how to tell when you can finally go without.

By Liz Pulliam Weston
MSN Money

A budget is an invaluable personal finance tool. Every book I've written -- and many columns as well -- talks about how important budgeting is when you're trying to get your finances on track.

But I don't use one.

Jeff Yeager, the author of "The Cheapskate Next Door," doesn't either. We're in good company: About 90% of the 360 thrifty folks Yeager polled for his book don't have a formal, written household budget.

Are we are all terrible hypocrites, espousing the importance of living within one's means but not bothering to monitor whether we're doing that ourselves?

Nope. Furthermore, I think being budget-free should be your goal.

It's not that budgets aren't helpful, Yeager said. It's that at a certain point, they can be -- maybe should be -- outgrown. A diet that really works becomes a lifestyle change, he pointed out. The same thing happens with formal spending plans, at least among Yeager's fans.

"Most of these people are long-term cheapskates. They're not the nouveau cheap," Yeager explained. Living within their means has "become second nature to them."

We don't ignore our spending. I keep track with personal finance software. Yeager does what he calls a "spending autopsy" a couple of times a year, looking back at what he and his wife have spent over a month and deciding whether to make adjustments.

But we don't have formal, written guidelines about how much to spend on this or that. Here's what it takes to live a budget-free life:

No credit card debt. Carrying a balance is usually a sign you're using plastic, rather than discipline, ingenuity or a second job, to close the gap between your income and your outgo. Credit card debt shouldn't just be paid off -- it should be a long-distant memory before you try to solo without a budget. Until then, you can learn how to budget using MSN Money's decision center devoted to that topic.

Reasonable overhead. Most of the people Yeager polled, a self-selected group of cheapskates who ranged from poverty level to wealthy, kept their spending on essentials to 60% or less of their take-home pay. My take is that it's tough to live a budget-free life if your must-have expenses exceed 50% of your after-tax income. (Must-haves include stuff like shelter costs, utilities, food, transportation, insurance, child care, minimum loan payments.) You simply don't have enough flexibility when much more of your money is eaten up by your overhead.

Automatic savings. To live successfully without a budget, you have to make sure that all the important expenses are being taken care of, and the best way to do that is through automatic deductions or transfers. My top priority is making sure we're saving enough for retirement, and we're also saving for our daughter's education through regular transfers to a 529 college savings plan.

I've also got a bunch of "savings buckets" (subaccounts at my online bank) for various goals and irregular expenses, including property taxes, insurance payments, vacations, home maintenance and repairs and car expenses (including savings so we can pay cash for our next cars). All of these goals are funded with automatic transfers from our checking account to the appropriate savings account. That way I know I'm on track for all our various goals without having to think too much about it.

Continued: A fat emergency fund 

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