Ramit Sethi: Forget Your Budget — Do This Instead
Written by
Nick Perry
Edited by
Gary Dudak
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These days, there’s so much basic financial advice sold online that it’s surprising to hear a controversial take like, “Don’t keep a budget.” But, that’s exactly what money expert Ramit Sethi advises in a recent video posted to his YouTube channel.
The New York Times bestselling author and Netflix series host tells his more than 600,000 followers that he doesn’t keep a budget, and you don’t need to, either. Read on to find out why.
Why Sethi Doesn’t Keep a Budget
“Why do you all torture yourselves so much?” Sethi asks in his video. Keeping a budget is difficult, requiring constant oversight and attention to detail. Not only that, but you have to plan for unexpected expenses and predict the future to a certain degree to understand what you’ll need to spend money on each month.
To Sethi, Americans’ commitment to keeping budgets reflects the Puritan work ethic many have, which makes them believe they need to be working all the time. He said, “What’s a budget gonna do? You’re gonna have to collect all these numbers from all over your entire financial infrastructure from the last six months … then you’re gonna sit there and stare at them and make them fit into some spreadsheet.”
Without context regarding whether an individual item is “a lot” or “a little,” a budget loses its utility. For an example, Sethi uses $3.69 on peppers as an example. But is that a lot or a little? The only way to know is to keep a budget forever and compare over time, which is unproductive and exhausting.
What You Should Do Instead of Keeping a Budget
Instead of keeping a budget, Sethi recommends using his free Conscious Spending Plan. Sethi highlights three things to do instead of maintaining a budget.
Start Automating Your Money
Many expenses today can be covered automatically. Just set up auto-pay and you can pay your rent or mortgage, car payment, subscription fees, utility bills and much more on the same day every month. That allows you to plan monthly fixed costs without a specific budget. You already know exactly when and where that money comes out of your pocket.
Make Sure You Understand What Your ‘Rich Life’ Is
Everybody leads different lifestyles. What’s important is understanding what a “Rich Life” means to you. Your “Rich Life,” according to Sethi, is your ideal life that maximizes your relationships, finances and ordinary days. What’s the balance of income and expenses that you need to lead that life? Leading a “Rich Life” doesn’t mean you have to be rich. It just means you must understand what you need to lead the life you want.
Make Sure You Know Your 4 Key Numbers
These are the figures that Sethi believes are way more important than keeping a budget:
- Fixed Costs: You pay the same every month without a credit card, like a mortgage or car payment.
- Savings Rate: The percentage of personal income from each paycheck you save in a retirement plan or savings account.
- Investment Rate: The percentage of personal income from each paycheck you invest.
- Guilt-Free Spending: The remaining money you have to spend on things that help you live your “Rich Life.”
If you manage your first three key numbers successfully, Sethi says you should have 25-30% of your money to spend guilt-free.
Final Take
Saving money is hard enough, so why make it harder by creating and adhering to a strict budget? You only live once and Sethi argues that if you stick to his Conscious Spending Plan, you can lead a Rich Life without ever having to keep a budget.
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