Taking a hands-on vs. hands-off approach to budgeting

Finding the right way to budget and hold yourself accountable can be difficult. We all have different jobs, lifestyles, and financial commitments that make trying to apply a cookie-cutter method of budgeting nearly impossible.

One method that works for one person, such as meticulously maintaining an Excel spreadsheet for everything you spend, won’t work for someone who gets stressed out by the idea of just regularly checking their bank account balance.

Likewise, trying to force one method of budgeting on another person can result in unnecessary stress. That’s why it’s important to explore the approach to budgeting that works best for you in order to help maintain a financially fit lifestyle.

Here, we’ll discuss two different, high-level approaches—“hands-on” and “hands-off” budgeting—to help you determine if either works better for you.

“Hands-on” vs. “hands-off” budgeting

When it comes to budgeting, many of us have drastically different approaches, which are often a result of trial and error with regard to what works best for our specific financial needs.

Some of us are what you’d call “hands-on.” We check our bank accounts almost daily, make very detailed budgets that we constantly track, and often feel an overall sense of control with regard to where our money is going.

On the flip side, some of us are what you’d call “hands-off." We don’t like dealing with money every day and would rather not sit down to plan out a meticulous yearly budget. It’s not that we don’t care about money, it’s that we don’t want to spend a large amount of time managing it. To get around this via a “hands-off” approach, some of us automate everything to minimize the amount of effort we put into thinking about our money.

While the principles guiding what we do and our long-term financial goals are similar, how we get there is quite different—and that’s okay.

Taking a “hands-on” budget approach

For those that prefer a more “hands-on” approach, here are some basic steps that require a bit more legwork, on a more regular basis.

• Start with what’s possible:

  Start your budget by looking at the biggest constraint on your spending—your total income (not just your paycheck). Average out your paycheck and any extra money you have coming in on a regular basis (such as money from a side-hustle) in order to create a baseline of what you can spend each month.

• Prioritize and categorize:

  Break down your spending into different categories and prioritize them based on whether they are a “required spend” (e.g. rent or mortgage), “uncompromisable” expenses like important activities and hobbies you know you will spend money on (e.g. baking supplies & tools), or “nice but not necessary” expenses (e.g. dining out or getting coffee daily). Also, take into account any upcoming big trips, events, or large purchases. This can help you paint a picture of where your money regularly goes or where you know it will definitely go in the year ahead.

• Jump to the numbers:

  From there, look at what your spending was over the last year to help provide a benchmark for setting up this year’s budget. It’s important to assess how you felt about your spending during the year, while taking note of areas where you stayed on track and others where there’s room for improvement.

• Be realistic:

  After creating this baseline, assign the money that you need to pay each month for bills and rent (unfortunately, there’s no avoiding these). With what’s left, assign dollar amounts to your “uncompromisable” expenses. Just as it is with cutting spending, it’s important to approach budgeting with a good sense of what you’re not willing to give up. Being realistic can give you a greater chance of success in that you’re not creating a budget you know you can’t stick to.

• Divvy out the discretionary:

  From there, the money left over is for anything else you want to do for the month, like going out with friends or catching a concert, or even setting money aside for savings. While it can still be a good idea to assign specific amounts of this money to activities you know you enjoy regularly, there’s inevitably a bit more flexibility in terms of categorizing everything here. After all, this money is discretionary, so it’s okay if it isn’t perfectly allocated.

• Track and adjust:

  Whether it’s through spreadsheet or an app, track your spending based on your budgeting breakdown and keep daily or weekly tabs on how your spending is matching up to your budget. Update it in the spreadsheet or app as you go. At the end of each month, assess how you did with staying on track and make adjustments to your yearly budget to account for any changes.

Taking a “hands-off” budgeting approach

For those that prefer a more “hands-off” approach, here are some basic steps that can enable you to focus less on your budget.

• Start with what’s possible (i.e. your income):

  Most people’s incomes limit what they can do with their money. Whether you’re hands-on or hands-off, there’s no avoiding this one. Start with determining your monthly income to get an idea of what you can realistically contribute to your different financial obligations and goals each month.

• Separate accounts for separate goals:

  You probably don’t want to spend time worrying about whether buying a few extra cups of coffee will get in the way of achieving your financial goals. To help avoid this, open up separate checking, savings, or retirement accounts for each of your goals. That way, the money for each goal is better separated from your daily spending, and you can live your life without worrying about every dollar spent. The type of account you should use for each depends on the goal.

For retirement savings, most people use a 401k or IRA. When saving for a medium-term goal like starting your own business, some use a high-yield savings account. For short-term goals where you want easier access to cash, like buying a festival ticket, some use checking accounts. From here, think about how much money each goal requires and calculate how much you would need to set aside per month to reach the goal by its target date.

• Automate, automate, automate:

  You may want to ensure that you don’t even consider spending the money you want to put towards his goals on something else, as sometimes leaving all of your money in one place for too long makes it too easy to spend it without thinking. To avoid this, you can automate everything, from bill pay to savings. This way, you can do what you enjoy instead of focusing on where each dollar of your spending goes.

For example, you can have the target amounts for long-term goals directly deposited from each paycheck into their respective accounts. For bills and other timed payments, you can set up regular automatic transfers into each separate account as well. Subsequently, set up auto-pay for all new recurring bills immediately. While this means putting in some more effort up front, you may be able to avoid annoying reminders later.

• Spend how you want, but set up guard rails:

  Keep the remaining money in your checking account and use it to pay for everyday spending and smaller things like going out to eat or catching a local concert. Since the money you need for your other goals and required payments is already pushed into other accounts, you are less likely to have to worry about exactly how you spend your discretionary funds. To make sure you don’t overdraft, set up triggers or notifications that will alert you if the account’s funds fall below a certain threshold. This allows you to adjust your spending accordingly and avoid overdrafts.

• Check-in and adjust as your lifestyle changes:

  Every few months, look at how your spending and savings are going, particularly if you’ve had multiple low-funds alerts in a row or if your lifestyle drastically changes (such as if you’ve transitioned from full-time employment to freelance contracting). In these cases, readjust the amounts on his automatic transfers and reassess your goals. Once this is done, it’s easier to kick back and relax while your money works for you.

Finding a budgeting method that works for you

Regardless of your money management style, creating and following a budget can help make managing your money easier.

It’s important to note that these approaches may not work for everyone, and there are a number of other ways to budget that may be a better fit for your financial needs, all of which will most likely take practice. What matters is that you find a method that works for you and helps you stay on track over time.