Budgeting can be a polarizing subject in the financial independence community. Some swear by no budget at all. Others, like me have been through at least a few budget stages along the way.
For me, it all started on the wrong foot and I made adjustments along the way. A face plant in your financial journey is not a life sentence to doom and gloom.
I was spending far more than I earned. The ship was sinking fast.
When the first paycheck arrived, it was gone immediately.
We marched to an ATM machine at basic training with instructions to withdraw our pay in cash. Then we proceeded to pay for everything the United States Air Force provided for us. I had no money in my hands by the end of the line.
Over the next 30 years, I traveled on a journey to financial independence. I struggled to manage money early on and eventually found a groove.
Like so many others, I had no understanding of personal finance when I stepped into adulthood. I learned by trial and error.
These are the four stages of budgeting I’ve used from my first paycheck through my mini-retirement. You may encounter similar stages in your journey.
Budget Stage 1: No budget, no control, no idea.
When payday arrived while I was in the Air Force, my money was always gone within days. There was no concern about bills. The government provided a roof over my head and meals for my belly.
My spending was carefree and reckless.
I took no effort to measure what came in or went out. I knew that I had nearly two weeks to survive at the cafeteria by the time the money was all gone.
When a local electronics store approved a store card application, my mindset didn’t change. I bought a big stereo with the money I didn’t have and had no process to ensure that I would have the cash to make my payments.
The cycle continued as I got a credit card and the AAFES deferred payment plan (DPP). Then I maxed them out.
I was spending far more than I earned. The ship was sinking fast.
By the end of my four-year enlistment, I had about $18,000 in debt, spread between credit cards, a student loan, and a key and heater model truck loan.
I was making minimum payments by the skin of my teeth.
Budget Stage 2: Strict tracking with a primary focus on debt.
After I left the military, I knew I had to make significant changes in my financial life.
I started a job with IBM that paid more than double my military salary and decided to use a budget to solve my debt problems. I tracked this budget on a notepad with a pen for years.
We tracked every penny that came in, and every penny that went out received the same scrutiny.
My partner and I made sacrifices to help us beat down debt. We house hacked, ate ramen way too much, and didn’t buy things we didn’t absolutely need.
Our simple pen and paper budget was strict.
I needed a strict budget during that stage of my life. During these years, I started to understand the value of saving and the power of compounding.
We lived with a strict budget for about eight years. We wiped out debt, which totaled $30,000 between us during this time.
Budget Stage 3: The anti-budget years
After we wiped out our debt and significantly grew salaries, we spent much less time focused on a budget.
The number one priority was always to maximize savings for the future. We funded our retirement accounts and set aside money for investments in taxable accounts.
Early retirement became a goal around this time. However, I felt that we needed to release the strains that our very restrictive budget created.
We used these years to save aggressively for retirement and spend without worry.
We still took out loans for cars, and that’s something I would do differently. There are not many things I would change in my life, but in retrospect, my obsession with cars cost us years of extra work.
We created anti-budget success through the experience of years of strict budget compliance. We always spent less than we made but never worried about what we spent.
I rarely looked at our bank or credit card statements. Periodically, I would find some charge on a credit card statement for a subscription we paid for that we didn’t even know we had.
Living an anti-budget life is carefree but not very efficient. There are always tradeoffs.
We were nailing our savings goals and spending money on what we wanted. We took some memorable trips during this stage of life.
We also bought a bunch of stuff we didn’t need.
I have very few regrets about this stage of budgeting in my life. We each had stressful jobs and were well paid. We made huge gains towards our retirement goals and never worried about money.
Budget Stage 4: Mini-retirement feels great, and I want to ensure it can continue.
I left my job in 2021 to experiment with a mini-retirement. The freedom I have with my time is a fantastic feeling.
Our household income dropped by nearly 70% when I left work.
It was time to spend some time on our budget again. After years of living an anti-budget life, it felt strange.
We deployed a zero-based budget with a single goal in mind. We can prove we can live comfortably on the money we plan to use in retirement.
When you plan for retirement and pick a number but spend much more than that every year, you can begin to worry. We built our new budget to track our income and spending, rather than completely restrict it like our pen and paper budget.
This stage has taken some adjustment. It’s hard to move from a carefree spending lifestyle to one that has boundaries. These boundaries are essential to me, though.
We can live on much less than we used to spend and not feel a pinch from our budget. Our new budget is in place to help us stay on track.
I can see a time that we will remove the guardrails again. But for now, our zero-based budget helps us stay on track.
Wrapping up my 4 budget stages of my financial independence journey
Different stages in your financial life call for unique budget strategies.
Unfortunately, most of us enter adulthood with minimal personal finance education and will live with no budget and constraints. If you are young and getting started, I recommend learning about budgeting before digging a hole and burying yourself with debt.
A strict budget can be a great tool to beat down debt and start a journey to financial success. This type of budget is very restrictive and, at least for me, was not sustainable once we defeated debt and created more income. The process gave us a huge leg up on our financial journey.
The anti-budget lifestyle boosted our savings and kept us from worrying about money in our daily lives. During this stage, we prioritized savings and increased our savings rate yearly by spending less than we made. The anti-budget has very few boundaries and can cost you extra years of work. To me, the freedom was worth the tradeoff.
I have employed a zero-based tracking budget to put up some guard rails during my mini-retirement. This stage proves that we can live on the money we planned for retirement. At this point, we still have time to make adjustments if needed.
A budget is a valuable tool in your financial journey.
The budget doesn’t have to be highly restrictive for your entire journey. You can build good habits in earning, spending, and saving that can relieve stress from a strict budget.
Embrace different stages in your financial journey and realize that you will need to adjust your budget strategy as you go.
