Yes, I think that budgets are the most ill-conceived idea of how to plan for your money on the personal level.
Why? Very simply – Life Happens
It is those fortunate or unfortunate turns in life that make budgets incredibly useless. I remember as a child my parents working to have a budget. The idea in the 1960’s called the Envelope System was to cash your paycheck and put the cash into different envelopes for each expense. It still exists today, and just like then it only works if and when you have the self-discipline to not reach into the other envelope and borrow from groceries to pay for entertainment.
The problem is people are consumers and are influenced daily in every possible way to spend money. The self-discipline idea of a budget gets hammered at all the time, and just hearing the word budget can be a self-defeating mental image. Once the “budget” gets blown, then it becomes a mental spiral towards financial instability.
Budgets work about as well as diets. Search on Amazon under personal finance for budgets. The result is 1,112 books. Search for spending plans and you get about half as many. Diets – the result is 22,637. Eating plans gives you 14,057 results. Obviously, negativity sells better than positive reinforcement.
My approach is to have a pre-determined spending plan. I want you to spend yourself into creating personal financial wealth and success. It all begins with the Financial Olympian™ Creed.
Creating a spending plan that helps you save first and then pay your fixed expenses. The extra left is to spend without having worries is critical to your financial success and happiness. By planning ahead for where your money is going, you’ll ensure it is spent in ways that are truly important to you and that there’s always enough. #4 of the Financial Olympian™ Creed is to live within your means.
Know How Much You Have
One of the best reasons to have a spending plan is knowing how much you have to spend. Maintaining your cash flow will help you understand how much money you have to spend each month and prevent you from falling into debt. With a system in place, you will clearly know how much income is coming into your account each month. For some of us, our income is steady and consistent. For others, income may be variable and a little harder to anticipate, which is why it’s even more important to keep track of incoming cash on a monthly basis.
Know How Much You Need
When you initially set up a spending plan, the first step is savings. This eliminates the all too familiar issue of having nothing left after spending to save. Then you take a look at all your fixed expenses that need to be covered each month. These fixed areas may look familiar from more traditional budgeting exercises.
Once you know how much money you need to cover your fixed expenses, you can avoid outspending your income!
Save first, required fixed expenses second, and then the remainder can be spent as you want.
Create a space for some guilt free spending. Set a weekly cash budget for everyone in your family so you have cash to spend on whatever you want that comes up without feeling guilty about it. Latte break at Starbucks, no problem. Lunch with the guys, your in. This is especially compelling for teaching children the value of money.
Which leads me to the next reason you need a spending plan…
Plan for Future Wants and Needs
The money you have left over once your fixed expenses are covered is extremely valuable. This is money that you get to direct toward your future wants and needs. Maybe you have a large purchase you’re saving for, a household project you’re excited to start or a vacation you desperately want to book. Planning ahead with cash turns them into a reality without necessarily needing to finance a thing. Your spending potential increases and your ability to live the life you want becomes easier.
No Blame, No Shame
At the end of the day, having a spending plan in place can help you automate your financial life so that you can spend less time worrying about money and more time living life to the fullest. It simplifies your finances, organizes them accordingly and helps you maximize the money you have. A debt-free life is one lived looking forward, never backward. Past purchases don’t infringe on future purchases and good money choices follow you. There is no blame and no shame, because you’re able to live in the moment and plan for your future.
Ready to get started working towards your personal Financial Olympian™ Creed? We are ready to meet with you. All it takes is a phone call and an hour of time to get your successful financial future started.
Let me know your thoughts about “How BUDGETS SUCK”
Michael Tannery CPA CDFA™ AIF® ● CEO
PS Ready to get started and want to schedule an initial no cost consultation? Click here to schedule an appointment.