Just like most things in life budgets aren't for everybody.
For some people, it's actually best to not have a budget or at least that's what the
author of the best-selling book the automatic millionaire David Bach believes.
Let's see if it's true.
As you can tell by the title today I'm going to be covering a very intriguing budget known
as the automatic budget or sometimes as the no-budget budget.
Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about
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So when you think about being responsible with your money a budget may very well be
the first thing that comes to mind.
And judging by how many budgeting videos I've made already on this channel I would understand
if you're a little confused about why I'm making a video that says that for some people
no budget is necessary.
The last thing I want to do is misguide you so I want to get this out in the open first...
The automatic budget is not for everybody.
And if most of us are honest with ourselves most of us do need some kind of budget.
It may not be the zero-sum budget not everyone needs that in depth of a budget but most of
us do need some kind of budget.
However, that doesn't mean that budgets are for everyone.
Some people do have the necessary traits to live a financially successful life without
a budget.
So as you're watching this video keep that in mind and be very honest with yourself because
as intriguing as this budget is it isn't for everybody.
And the last thing you want to do is get yourself tied to the idea of this budget if it isn't
for you because then if you try it and it doesn't work it's all the more discouraging
when you realize you got to go back to more traditional budgets.
So with that disclaimer out of the way let's get into the no-budget budget.
WHAT IS IT: So what is the automatic budget and how does
it work?
Well as the name implies the automatic budget aims to make as much of your financial decisions
for you automatically as possible.
This is done by setting up automatic payments for things like your mortgage, rent, cell
phone bill, savings and retirement contributions and anything else that you can automate.
And it's actually pretty surprising how much that is.
After you've automated all the expenses and savings that you can whatever's leftover is
yours to spend on whatever you want.
The idea is that from here on in you will be able to just monitor your finances as opposed
to setting up a monthly budget.
So who does this type of budget work best for?
In my opinion, it works best for those who either already have more money coming in than
they do going out or at the very least have a pretty good idea of where they want their
financial life to go.
In other words, they have well-established goals.
This is because for this budget to work long-term you need to be willing to pay yourself first
like David Bach preaches but you're also going need to be willing to live on less.
Why do I say that?
Because just like with any budget you need to be able to invest enough now so that you
can support yourself and retirement later.
The difference with this budget is that since it's a lot more like a set-it-and-forget-it
budget than most because you decide from the get-go how much you're going to allocate to
what category and basically just have it done automatically from then on your initial decisions
are going to have a huge effect on your financial future.
Say if you're in your early twenties and just starting your first job and you decide to
pay yourself 10% of your wages and you use the automatic budget throughout your entire
40-year working career.
Just to make the numbers easier let's assume that you make $50,000 a year meaning that
if you're putting away 10% you're saving $5,000 a year.
At 8% rate of return, you would wind up with $1,351,423.77 when you retire.
However, there are a couple of things to consider here first $1.35 million is good no doubt
about it but it's not going to be quite as good 40 years from now as it is today.
If we assume inflation is about 3% per year on average that means that the $1.35 million
would be worth about $430,000 today.
And if you were to get an 8% rate of return on that you would realize that in today's
dollars your retirement income would be about $34,400 a year.
Now some of you might go well that's fine I can live on $34,400 today and since it's
in today's dollars why would this be a problem?
And you have a point it might not be a problem I'm not trying to use this example to denigrate
the automatic budget that's not my intent.
But in this example, you were saving 10% of your money and making $50,000 a year which
means you were living off of $45,000 a year in today's dollars.
So you would need to adjust your lifestyle a little bit in retirement which is probably
not what we would want to do if we had the choice.
That's the great thing about the automatic budget though is you do have the choice and
that's why I was saying your initial decisions are so important.
Let's say that in the same example you decided to save 20% of your income instead of 10 but
you still made $50,000 a year.
That would mean you're saving $10,000 a year and would wind up with $2,702,815.10.
That equates to a little under $830,000 today meaning that your retirement income in today's
dollars would be a little over $66,000 a year.
Now, of course, you can always change your initial decision later on down the line.
Say if you went your first year saving 10% and realize that you could still manage to
get by comfortably if you up to 20% you could certainly do that in the next year or whenever
you realize it but I'm just going to say the next year for this example.
And say if you did that.
Say if you upped your investments from $5,000 to $10,000 a year or from 10% to 20% given
the numbers in the last example you would end up with $2,597,881.85 when you retire.
That's right around $105,000 less than had you started at 20%, but it's still significantly
better than staying at 10% the whole time.
It translates to a difference of a little over
$32,000 in today's dollars and roughly $215 a month difference in retirement income in
today's dollars.
So it isn't necessarily backbreaking if you catch it early but that initial decision is
still important and can make a difference when dealing with this budget.
So the way I see there are 2 main ways that this budget could fail.
The first way is if you aren’t aware of where you’re money is going and how much
of it is leaving the house each month.
Because you may end up not having enough money to cover your expenses or you may end up forgetting
some expenses that you don’t pay every single month such as car tabs and other irregular
expenses like that.
This means that the term no-budget budget is a little misleading because you do have
to set up the budget initially just like with any other one.
It’s just that you don’t have to do a new one every single month assuming you set
up the initial budget properly.
The second way that this could fail is by not leaving you enough money to live on when
you reach retirement like I already covered.
So that's how the Automatic budget works.
As always if there are any other types of budgets that you want me to cover let me know
in the comments below.
But that'll do it for me today once again if you enjoyed this video be sure to subscribe
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