Not long ago I shared the reasons why my wife and I do not adhere to a budget in To Budget or Not to Budget. While I did extol the virtues of budgeting in that article, my explanations for why we do not do a typical budget may have come across as budget bashing.
As a quick recap, the reasons we do not budget are:
- Avoiding Micromanagement of
- each other
- small expenses
- Too time consuming for our hectic lives
- Missing the budget target for things outside your control means you wasted your time
Those reasons paint budgeting in a bad light. Now before you go accusing me of being an anti-budgeter, hear me out. I am a budgeting supporter. Really, I am. And, at the risk of being called a flip-flopper, we actually do budget – but in a completely different way than what most associate as typical budgeting.
Micro vs Macro Budgeting
Here’s the description I previously provided for budgeting:
“budgeting is tracking your monthly income and expenses to ensure you achieve a pre-determined target or goal amount. The emphasis of budgeting is usually placed on the expense side since income is generally more fixed or stable (you get your same salary or pay each month) while expenses are more variable and within your control.
For example, in a budget, you would establish goals for spending on items like rent, groceries, utilities, tv, entertainment, gas, etc. and then you’d track your actual expenditures in an attempt to spend at or less than your target.”
I call that micro budgeting. Why? You get extremely detailed and granular…a budget of $500 for groceries, $200 for gas, $100 for entertainment, and so on. And then you have to track your actual spending, categorize everything, and analyze. It can be a laborious process even once you have become efficient at it.
On the flip side, macro budgeting approaches budgeting from a high level. You do not establish and fuss over individual categories. You don’t have a precise set target for each line item you have to hit “or else.” Rather, you know, in general, how much money should be left over each month after all the bills are paid.
If you are around your target – awesome! If not, then you investigate why and take corrective action if needed.
That’s what we do; we are macro budgeters.
We Skip the Micro Budget and Macro Budget Instead
Perhaps this question or objection is popping into your mind: how do you know where you stand financially if you do not track all of your income and expenses?
Good question. Here is how our system works:
Our main sources of income are my salary and my wife’s salary. We have our own, separate checking accounts. Her paycheck is direct deposited to her checking and likewise for me. She does a majority of the grocery shopping, gets stuff for the kids and gas for her car. Now that all her student loans are paid off, those are her main expenses. She puts them all on a credit card and, after making the monthly payment in full, she transfers what is left to my checking account.
I pay all of the rest of the household bills (mortgage, electricity, gas, cell phone, etc.). After everything is paid, I can easily tell how much we have left over each month. Voila! Macro budgeting at its finest.
There are two other important distinctions:
1) Communication – Communication is a cornerstone to any healthy relationship. Communication does not disappear under macro budgeting. True, we do not sit down and talk about how much we will spend on things like beer each month (if we did, that would be the only category where I’d actually want to spend more!). We do discuss upcoming one-timers that will cause variances. For example:
Wife: Honey, the baby has outgrown the infant car seat and we need to purchase a bigger one.
Me: How much?
Wife: We are looking at $300.
Me: $300? She just turned one. Can’t the baby just be strapped into the front seat with the regular seat belt yet?
Me: Oh, ok.
Obviously, the conversation above was fabricated for illustrative purposes. First, my wife refers to me as “hey you” instead of affectionately as “honey.” Also, I would never endanger my child to save some money.
We also discuss if something ends up amiss in any given month and we will dig into it if it is material enough.
Me: What the heck? Why are we about $300 low this month?
Wife: Um, remember the car seat we bought?
Me: Oh yeah… [mutters] still think she could ride in the front seat just fine.
2) Long-term forecasting – We also do higher level intermediate term forecasting. Well, I do it on our behalf (that’s not really my wife’s cup of tea and it comes naturally for me as an accountant/financial analyst). For instance, I did an analysis to determine how much we could afford to spend on a house and then forecasted what our cash flow would be if we proceeded. All of this was based on macro level budgeting with perhaps some other details and assumptions thrown in.
Why Macro Budgeting Works for Us
- Flexibility – Macro budgeting gives us flexibility. We are not concerned about specific line items with rigid goals, but rather our overall savings target. We do not fret if we spend an extra $10 in groceries. Macro budgeting is adaptable to the situations that arise in life.
- Goals still achievable – For us, the proof macro budgeting works is found in how we have not only met our financial goals, but we have blown them out of the water in many regards. We paid off our massive $140k debt in just under 3 years, we successfully saved for a house down payment afterward, and we recently found out how it feels to be debt free by getting rid of the last of our non-mortgage liabilities.
- Higher level management – Macro budgeting helps us to avoid the pitfalls and frustrations of micro budgeting. We do not micromanage or nag each other on spending. We do not begrudge ourselves for missing detailed budget targets for a multitude of categories. We save time and avoid the hassle of micro budgeting.
Macro budgeting works for us. It may not be the best bet for you especially if you have been out an out-of-control spender in the past. As the saying goes, “to each their own.” You should implement whatever budgeting method works best for you. Any type of budgeting is better than none at all! Just be sure to always have your best financial interests in mind and have a money mindset.
Are you a macro budgeter or a more conventional, micro budgeter? For the micro budgeters, do you think a macro approach is reasonable? Or is it an absurd concept? Would you ever consider it?