Yes, you can live without a budget, if you're diligent

A budget is an invaluable personal finance tool. Every book I've written — and many columns as well — talks about how important budgeting is when you're trying to get your finances on track.

But I don't use one.

Why bother to budget?

Jeff Yeager, the author of The Cheapskate Next Door, doesn't either. We're in good company: About 90 per cent of the 360 thrifty folks Yeager polled for his book don't have a formal, written household budget.

Are we are all terrible hypocrites, espousing the importance of living within one's means but not bothering to monitor whether we're doing that ourselves?

Nope. Furthermore, I think being budget-free should be your goal.

It's not that budgets aren't helpful, Yeager said. It's that at a certain point, they can be — maybe should be — outgrown. A diet that really works becomes a lifestyle change, he pointed out. The same thing happens with formal spending plans, at least among Yeager's fans.

"Most of these people are long-term cheapskates. They're not the nouveau cheap," Yeager explained. Living within their means has "become second nature to them".

We don't ignore our spending. I keep track with personal finance software.

Yeager does what he calls a "spending autopsy" a couple of times a year, looking back at what he and his wife have spent over a month and deciding whether to make adjustments.

But we don't have formal, written guidelines about how much to spend on this or that. Here's what it takes to live a budget-free life:

No credit card debt

Carrying a balance is usually a sign you're using plastic, rather than discipline, ingenuity or a second job, to close the gap between your income and your outgo. Credit card debt shouldn't just be paid off — it should be a long-distant memory before you try to solo without a budget. Until then, you can learn how to budget using MSN Money's decision centre devoted to that topic.

Reasonable overhead

Most of the people Yeager polled, a self-selected group of cheapskates who ranged from poverty level to wealthy, kept their spending on essentials to 60 per cent or less of their take-home pay.

My take is that it's tough to live a budget-free life if your must-have expenses exceed 50 per cent of your after-tax income. (Must-haves include stuff like shelter costs, utilities, food, transportation, insurance, child care, minimum loan payments.) You simply don't have enough flexibility when much more of your money is eaten up by your overhead.

Automatic savings

To live successfully without a budget, you have to make sure that all the important expenses are being taken care of, and the best way to do that is through automatic deductions or transfers. My top priority is making sure we're saving enough for retirement, and we're also saving for our daughter's education through regular transfers to a 529 college savings plan.

I've also got a bunch of "savings buckets" (subaccounts at my online bank) for various goals and irregular expenses, including property taxes, insurance payments, vacations, home maintenance and repairs and car expenses (including savings so we can pay cash for our next cars).

All of these goals are funded with automatic transfers from our checking account to the appropriate savings account. That way I know I'm on track for all our various goals without having to think too much about it.

A fat emergency fund

Yeager doesn't think this is strictly necessary, and many of those he polled don't, either. When you're saving appropriately for upcoming expenses and your overhead is low, you may not need to have a big rainy day fund. But I like to have plenty of cash earmarked for big setbacks such as job loss or in case a car or home repair exceeds what's been set aside in those particular buckets.

A good tracking system

Because money is coming in and going out at different times, I like having a good cash-flow forecast feature as part of my personal finance software. A cash-flow forecast tells me what will be left over in the days ahead, not just what's in our chequing account today. That way I know what's available for day-to-day spending, and I can make adjustments on the fly. (Quicken Online had a decent forecast feature, but it's merging with Mint.com, which doesn't have one yet, so I'm going back to the Quicken download product, in case you care.)

Also, to earn rewards, we put most of our spending on credit cards — paid off in full each month, of course — and I've set up alerts to let me know when we're closing in on a spending limit I've set for each card. When that happens, I alert my husband that we need to lay off the spending for awhile, and he (mostly) cooperates.

Our system isn't flawless. We've had downdrafts in our income and upticks in our expenses that required me to pay closer attention for a while, and make adjustments. I've also found it's important to sit down every six months or so, as Yeager does, and review all our spending to see if we really like where our money is going. One such review, for example, recently led me to ask for (and get) better deals for our cell service and newspaper subscriptions.

Living without a budget would be tough to pull off if one of us were unemployed, or our income were much more variable than it is, or if we weren't on the same page about our financial priorities.

But for us right now, it's a pretty easy system to manage. And the budget-free life is a pretty nice reward for the discipline of living within our means.

You don't," as Yeager put it, "have to spend the rest of your time here on Earth with a spreadsheet".

Liz Pulliam Weston is one of the web's most-read personal-finance writers. She is the author of several books, most recently Your Credit Score: Your Money & What's at Stake.