How to Control Your Spending Without Tracking Every Penny

We all agree you shouldn’t spend more than you make.  You may intuitively feel that you’re wasting a lot of money on inessentials.  Yet the last thing you want to do is spend your leisure time on Mint or Excel, entering in receipts for every latte you drink or every pair of socks you buy. So how can you get control of your spending without dedicating your life to it?

First, let’s state the obvious. Tracking every penny doesn’t work for a lot of people. I love detailed, color-coded spreadsheets, but I understand the people that come to me don’t. So I often recommend an approach I call bucket budgeting.

Instead of having clients track every detail, we create a system where we split the money into buckets (simulated through different bank accounts) and keep their spending within those lump sums. This system allows clients to prefund their expenses, monitor their spending in real-time, and avoid having to look at detailed spreadsheets continually.


The system

In implementing this approach with clients, I start with four main buckets:

  1. Income
  2. Recurring Expenses – Checking
  3. Day-to-Day Expenses – Checking
  4. Dream – Savings

As their names imply, each bucket serves a different purpose.

  • All household income goes into the income account.
  • Fixed, recurring costs like rent or mortgage, utilities, childcare, car payments, etc. to into the recurring expenses account.
  • Day-to-day expenses like food, shopping, fitness, and entertainment go into the day-to-day checking.
  • Events or things you’re saving for now and in the future (emergencies, dreams, financial independence) go into the dream bucket.

This system is similar to the envelope system or Elizabeth Warren and Amelia Warren Tyagi’s  50/30/20 budget.  These systems work because they leverage our existing habits.

First, we all tend to use the resources available to us. Author and historian C. Northcote Parkinson theorized that our demand for resources increases to meet the supply. If we have a $1,000 budget to complete a job, we’ll use the $1,000. If we have $10,000 to achieve the same job, we’ll use $10,000

Second, most of us use bank balance accounting. Rather than reviewing detailed accounting spreadsheets or financial analyses, we tend to check our bank account balance or room on our credit card to see how much we can spend.

Seeing how much we have in each bucket brings clarity around our resources and helps us become more thoughtful about our spending.


Setting it up

The first step in setting up this system is creating the four foundational accounts of your choosing. Look for a bank that doesn’t have any monthly maintenance fees or charges. I like banks like Ally, Capital One, or Alliant Credit Union for this. Local or regional banks and credit unions are also a good choice.  Again, the buckets are income, recurring/fixed expenses, day-to-day expenses, and dreams.

Next, have all future income direct deposited into the income account. Set up a direct debit for all fixed, recurring expenses from the recurring account. And get a debit card for the day-to-day expenses.

It’s essential to start this system using debit cards, not credit cards. I know you won’t be getting your credit card points, but we are trying to help you establish habits that you can eventually modify as you wish. The critical part is getting this initial clarity around your income and your spending.  And using debit cards allows you to see in real-time how much money you have to spend and helps you make thoughtful decisions around that.

On the 10th and 25th of every month, you’ll transfer money from your income account to your other accounts based on the prescribed percentage. I think Warren’s model of 50/30/20 is good, where 50% represents your recurring expenses, 30% for day-to-day costs, and 20% for savings.

While these percentages are ideal, you should start with whatever ratio you are currently spending. For example, if your spending 60% on your fixed expense, 39% on variable expenses, and 1% on savings, start there and make tiny adjustments every quarter. Additionally, as you get more clarity, you can refine the system for your life.


Tricks of the trade

This system has many nuances and can be modified in several ways after you’ve gotten comfortable with it. First, however, I’ve picked up some common tricks of the trade that may help you.

Start with net income: If you work for someone else, this step is simple. Take your net income (i.e., your income after taxes and deductions like health insurance and your retirement) per paycheck and multiply that by either 4.3 if you’re paid weekly, 2.17 if paid biweekly, or 2 if paid twice a month. Of course, there’s no need to multiply by anything if you’re paid monthly. If you are self-employed, I highly recommend using the Profit First System to similarly help systematize your business cash flow.

Create sub-buckets: If you find out that you have other specific things you want to save for (e.g., personal money for each spouse, large purchases, emergency fund, paying down debt, etc.), just create a bucket for whatever you need. If you’re at a bank that allows several buckets, you can easily do this without additional costs.

Debt AND savings: A common question I get is to contribute to first: debt or savings? I like to do them both at the same time. You can split your savings amount between your emergency fund and debt paydown. While it may not be as efficient as throwing all your money at your high-interest debt first, having the balance helps make sure your financial foundation is stable if an emergency arises as you’re paying down debt.


Possible stumbling blocks

And as with any system, there will likely be some stumbling blocks and adjustments that you need to make while setting it up. Here are some common ones

  • An overlap between funding your account and paying credit card bills: The transition from credit to debit cards will be tenuous for about a month. That’s okay. Start using your debit cards immediately and pay the minimum on your credit cards for a month or so to help with the transition. Then, once you get the savings going, you can develop a more effective credit card paydown strategy.
  • Your mortgage is the majority of your fixed expenses: Your mortgage, which comes out once a month, is likely your most significant recurring expense. In this case, seed the accounts first and then pay your mortgage. You may also have to use some of your emergency fund to help you with the transition. You can replenish the funds when the system is working.
  • You run out of money in your fixed and day-to-day accounts and want to raid the emergency fund or dream buckets Do not raid the other buckets! This situation tells you either you’re overspending or you didn’t get the percentages correct. See if you can cut some expenses or determine if you need to adjust the ratios.
  • This system feels awkward! Yes, it’s supposed to, as with learning anything new. Just keep going. I’ve had many clients realize just how much this system makes sense after a couple of months of doing it. The more you do it, the better you’ll get.
  • We aren’t doing it perfectly! That’s okay. Keep going! Progress, not perfection. Like life, you will continue to learn and grow as you begin to make the process your own.

This approach provides an excellent alternative for those who don’t want to worry about keeping track of every expense. It’s also a good tool for behavior change for those that have trouble with spending.  Remember that budgeting is about intention, not restriction.  You’re creating a spending plan to ensure that you use your money in the way you want.