Budgets Don't Work...Here's What You Should Do Instead

I'm not a big fan of carefully following a strict budget. In fact, you don't even need to budget to reach FI. Yes, it is helpful to occasionally analyze your spending in key categories for planning purposes. But following a strict monthly budget is unnecessary, time-consuming, and worse case can be self-defeating.

Instead of following a budget, a better approach is to pay yourself first every month. This is a better alternative to budgeting because it is a no-brainer way to guarantee saving every month. What I mean by "pay yourself first" is to treat your monthly savings just like any other monthly fixed expense (rent, car payment, gym membership, etc). At the start of the month, invest 50% of your take home pay in a broad-based index fund (The Only Investment Guide You Ever Need). If you receive two paychecks a month, the first paycheck can be dedicated to your investments and the second paycheck for all of your other expenses. To make this a repeatable process, set-up a monthly automatic index fund purchase through your brokerage account. This will ensure you commit to your monthly savings goal without thinking about it.

If you have an employer matching 401K program, make sure you maximize this benefit as part of your monthly investment strategy. Your 401K contribution counts toward your 50% of take home pay investment goal.

The reason why "pay yourself first" works is because it takes all of the thinking (and second guessing) entirely out of the budgeting process. By automatically moving the money from your check book to your investment account, it becomes out of reach of day-to-day spending. Instead of agonizing over a strict budget, you've already saved your monthly goal so you're free to spend the remainder of your take home pay as you see fit.