How to Get Started With an Alternative Budget

alternative budget

We talk a lot about budgeting, but the truth is traditional budgets don’t work for everyone. They can be challenging to keep up and maintain, feel stifling and frustrate you more than they make you feel financially secure. Yes, budgets are not for everyone. So let’s talk about an alternative budget.

Laying the Foundation for an Alternative Budget

Essentially, the alternative budget that I’m referring to is a budget — just managed and presented slightly differently. Instead of weighing, recording and managing an array of small categories, the alternative is broken into five categories (or six if you need them) that you monitor differently.

Much like a traditional budget, you still need to figure out how much money you need to cover everything. Whether they be your monthly bills, the money you spend on groceries, Christmas gifts or your upcoming Mexico vacation.

The alternative budget doesn’t let you off the hook for doing the upfront work on these matters; it just lets you manage them on a month-to-month basis in a different manner.

Alternative Budget Categories

Your new alternative budget is broken into five or six different categories, in which you can “store” money. You can “store” either figuratively on a spreadsheet or literally in different online accounts in your larger bank account — I would only do this if your bank allows you to have free online-only bank accounts.

Category 1: Monthly Bills

Your monthly bills account or spreadsheet line accounts for all of your monthly expenses both fixed and variable such as your rent, utilities, car payments, insurance, etc. Everything you have to directly pay to someone else to maintain your home, car and general life.

Your monthly bills do not include your day-to-day expenses such as your groceries, drinks with the girls after work, that book you just purchased on Amazon or your daily coffee habit, those go into your monthly spending account.

Category 3: Short-term Savings

On your alternative budget, your short-term savings include everything you need to buy in the next year — think holiday and birthday gifts, clothing and shoes, the $200 you donate to Carol from HR’s charity run every year, the gift for Jane’s wedding and your savings for your upcoming Mexico vacation.

To save for these short-term savings, you’ll need to predict the amount you need and split that amount monthly so you can put it, figuratively or literally, into your short-term savings account.

Category 4: Long-term Savings

Your long-term savings is a category that covers savings that are going to take place over a longer period than the next year. This is essentially where you put all of the money you save (until you move it into an actual savings plan, invest the money or otherwise do other responsible savings activity with it). Perhaps you’re saving up for a new car in two years, or you’re saving a downpayment for a house. This is where it goes.

Note that your long-term savings do not necessarily cover your retirement savings. Those should probably be done through a specific account that ensures you get a good return on them. If this is not part of your employee benefits and you need to move your amount into your retirement account monthly, you can include it in this amount but keep it in its proper account.

Category 5: Emergency Savings

Your emergency savings should be kept separate from both your short-term and long-term savings because this amount is only for use in cases of actual emergency. If you already have this saved, great! Move it into the account and forget about it. If not, you’ll need to split it over the saving time you have set out and move it into the account as you save it.

Category 6: Spending Money

The spending money category in your alternative budget is for exactly what it sounds like, spending money. Note that in this budget, your spending money includes things like groceries, household, and personal items and essentially everything you’re going to purchase within the month.

Whatever you have left over once you’ve removed all of your savings and expenses needs to cover that. So it’s important that you take time beforehand to determine what you need to have to make things work for the next month.

Working With Your New Alternative Budget

I personally like the alternative budget because there are essentially less moving parts. Instead of tracking individual categories, you are tracking fewer categories of larger amounts of money. That said, you’ll need to be mindful about adjusting your larger budget categories for the month anytime anything changes, so you don’t throw off your amounts and end up not having enough money to cover everything!

You’ll also still have to track your savings if you’re saving for something specific, like a car or a house, so you don’t accidentally allocate the money somewhere else… oops!

One thing that I’ve found helpful with this kind of budget when managing it online through my bank is that I give all of my accounts names that state exactly what the budget is for and how much money should be in it monthly.

What budgeting tactics do you use to make your life easier?

Looking for More

Join our newsletter

If you like Critical Financial, subscribe and get our latest content via email.

Powered by ConvertKit

Share this post:

One Comment

  1. Ben says:

    I always say that the best budget is the one that works for you and that you’ll stick with! One addition to add – I’d recommend setting up automatic transfers into your savings accounts, that way you don’t have to remember to move the money and aren’t tempted to spend it! Most online banks make it easy to set up transfers, do it the day or two after you get paid!

Leave a Comment