Can you manage your cash without a budget?

TLDR: Yes. :)

Common wisdom says that you need a budget in order to be "good" with money. After all, if you don't have a budget, how can you keep yourself from spending money so that you can save and invest in your future? 

Before we get to that, we need to understand why budgeting has such a prevalent place in the common wisdom.

Budgeting helps many people prevent unnecessary spending and enables beneficial savings and investing, especially if they have not kept a tracking routine for their finances. By setting categories of where money goes, people get a view of their projected cash flows. They may become more focused and motivated to keep within the spending limits of each category. Having their savings or investments contributions arranged in advance helps them actually put those funds in accounts where their money can earn them more money. Or, they might find that consulting their remaining budget is not enough for them to curb their low value spending and they must turn to tricks like having labeled envelopes for their cash that they use to make purchases. 

However, budgets are actually quite unwieldy, which is the main reason I have given them up. Sure, folks may say that they gave theirs up when they felt constrained by their budget, but every budgeting system I've come across allows for flexibility so that the budgeter can adapt to changes or unexpected events in their situation. It's the upkeep on the budget that fails people, or at least me, so more accurately, it's the upkeep on the budget that has failed this particular people unit. :)

Budgets are not one and done plans that just automagically (not a typo) do all the work for you. They require lots of upkeep, including the most basic one: remembering to consult the budget when making decisions (and of course, actually consulting said budget). But it also means keeping current spending updated, adjusting the budget to deal with new events, and even dealing with the many, many negative emotions that can come up when life and the budget don't align.

My own feelings have included fearing my own inadequacy at forecasting my needs or following through on goals. I've also found budgeting to lead to simple boredom. Or a lack of joy. Or all the way to straight up despair, particularly when I've had a partner who does not track the budget themselves. Eventually the negative feelings get associated with checking the budget, which makes every budget moment feel tedious. I have recognized that once something feels like a hassle, I will figure out ways to not do it – even if those ways are just avoidance and procrastination.

Thankfully, I have a system that works WITHOUT needing to categorize every line in my account statements, predict the unpredictable, or clumsily carry around envelopes of cash. 

Cue the infomercial imagery: HAS THIS HAPPENED TO YOU?!?! as I reach into my purse and pull all the envelopes out, cash spilling everywhere. I have enough junk in my purse already, and dexterity is my dump stat, thank you very much.  

Here's the thing. I still see the need to have oversight on how my money is flowing through my financial life, but I can get there by occasionally looking at my accounts. I don't categorize anything. Or well, OK that's a lie. Technically, I do make note of HSA purchases or business expenses that I don't have a receipt for, but that's pretty much it. 

So what do I do instead?

Three simple things. And one not as simple thing. No promises they are easy things in any case though.

First, I have adopted the mindset that spending, saving, and investing is really directing the flow of my money. That's instead of looking at saving and investing as stopping up my spending and looking at saving and investing as morally "good" in themselves. They are not: either I direct the funds towards purchases and expenditures that support Present Me in my process of becoming Future Me, or I direct the funds towards growing in strength to be used by Future Me (or my heirs, people whose Present Them and Future Them matter to me).  

Second, before I make a decision, I check in with myself to consider what value this particular sum of money adds to my life. Do I direct it to an immediate good now, or to a much better good later? Because I am mindful of what gives me comfort, joy, peace, and satisfaction, I tend to make good choices on my spending. 

Third, I keep my lifestyle modest to give myself a nice cushion. I keep enough money available to simply automate all my payments. I make all purchases I can on credit cards and autopay them in full each month. Doing this might have curbed my spending when I first started this method, but it is second nature now. 

Lifestyle is a huge factor in this method. Let's take the example of living expenses, as this is typically the big one. I have chosen to have a much lower cost home than I could afford. I could have chosen a smaller and even lower cost house, but I value the space I have. After all, I need to house my perhaps absurdly large collection of board games. And my kitties. But there were many larger, nicer, more expensive homes that I could afford on the market when I chose this house. While I spent more than I needed to, I also spent massively less than I could have, and that has given me a lot of cushion to direct funds to other areas to add value to my life. Like maybe buying my grail game Discworld: Ankh-Morpork someday? Just kidding. That thing is way too expensive for the value, even though I am a huge fan of Discworld. 

Finally, there is the other component to managing my cash that is not simple, and therefore cannot in honesty be called the fourth method. See, I am intentional with my saving and investing funds. Aside from the cushion I keep in my main checking account, I also have six months of lean living expenses set aside in a high yield savings account. I maximize my family's retirement savings options like the 401(k) and IRA. I strategically earmark funds for health spending and lifelong learning by contributing the maximum to my HSA and 529 accounts. And I do this with an eye on minimizing my tax burden. I should note that although I do support in the communal processes of building infrastructure, education, and other public goods, tax breaks are constructed to be incentives to earmark funds for specific expenditures like retirement, health, and education. I direct funds in these ways to keep the flow moving efficiently, which benefits me and my family as well as society in general. But doing so is somewhat more technical work than following a few heuristics. :)