Budgeting, like dieting, doesn’t work because folks don’t embed it in their lifestyles. It’s a chore a finance person recommends. Can we achieve budgeting’s goals a better way? People save leftovers after spending. Is there another path? Take Warren Buffett’s advice, “Do not save what is left after spending; instead, spend what is left after saving.” The question becomes: How do you decide how much to keep?
Budgeting Like Dieting Doesn’t Work Because it is not Part of a Lifestyle
Let’s look at budgeting and why it’s ineffective for many folks. Budgeting is a means to have ample resources to achieve goals. It needs discipline, persistence, passion for goals. And it generates stress when viewed as constraining. People don’t budget in today’s consumerism because money is cheap and credit easy to get. Flashy gadgets, seductive marketing, backed by alluring “deals” grab many folks. So, why budget? Yet, to capture those bargains, folks spend on credit for no financial gain.
Most people I counsel have trouble budgeting. If it challenges and frustrates you, too, try something new in 2019. Why not continue behaving as you are and spend as you wish? When I presented this question to someone whom I will call Richard, he replied, “I need to improve my finances. I can’t continue my current spending approach.” He explained that he needs to reduce financial stress and take control over his finances.
Spend What’s Left After Savings
Reverting to Warren Buffett’s advice, Richard agreed to save and then spend what’s left each month in 2019. Contrary to my advice, he did not wish to specify savings goals: an item, event, or project. Instead, monthly, he intends to set aside $1000.
“Is $1000 realistic?” I asked. Richard said, “Yes, I developed the figure after reviewing my past six months’ spending and highlighting patterns. I am sure I will save it and juggle what’s left.”
Richard kept this Warren Buffett quote on his desk to motivate him to save: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
“Won’t this savings approach cause just as much stress as budgeting?” I asked.
“No, I know my spending pattern–the areas where I must set aside funds monthly, and I want to build savings,” Richard replied.
The save-first approach excites Richard. He knows budgeting, like dieting, doesn’t work because it needs to be part of his lifestyle, and he doesn’t plan to incorporate that behavior in his routines. But, he is sure he can embrace the savings approach as part of his lifestyle because he believes savings are crucial to relieve financial stress. That’s why he plans to set up a monthly transfer of $1000 to a tax-free savings account. The balance left after this transfer must suffice for his expenses. “Comfort to handle emergencies when they arise is the main help of the save-first approach,” Richard said.
“Why not add savings in a budget and work with the traditional budgeting approach?” I asked. Richard replied, “I don’t want to assign and check funds to individual categories. I want two headings only: savings and spending.”
Budgeting Like Dieting Needs Commitment to Change
I suggested to Richard the envelope budgeting approach. When he has an urgent spending category in a month, such as taxes or insurance, he allocates a value to that category and places the cash in an envelope. If he doesn’t want to place cash in the envelope, write the number on a three-by-five or different sized card and put the card in the envelope. Later during the month, he can record his actual spending on the card to know when he exhausts the balance for the category.
Richard agreed and resolved to record his monthly spending. He plans to us an app and internet banking. He knows this approach will help him understand his spending pattern and spending drivers. Richard aims to get an accountability partner to discuss challenges and help him learn and grow from each month’s experience—including missteps.
Save and then spend what’s left means prioritizing spending options and setting spending limits monthly. Richard is sure he will succeed because of his intrinsic motivation. Besides, he wants to break the cycle of trying to budget, failing, and then not saving.
How is your budgeting approach? Budgeting, like dieting, doesn’t work because, it doesn’t become ingrained in folks’ lifestyles. Instead, people see it as a specific, frustrating program. The issue isn’t budgeting, but people’s view of the budget. Is it time for a new approach to your finances? Richard plans to change, and I intend to work with him. I am excited to journey with him and committed to being his cheerleader.
When In Debt Use Identified Savings Amount To Repay Debt
What if you have no cash to save but must live pay-check-to-pay-check? You must work with what you have. Now, you need a budget. Select a figure, no matter how small, and start setting it aside. This will give discipline while you work your way out of your present condition and will create an emergency fund. To build this fund, pretend you earn less than you do and save the actual earnings minus the assumed earnings figure.
Many folks make New Year’s resolutions to stop smoking, lose weight, and take control of finances. Unless we know the variable to manage, we waste time on these resolutions. The issue is not diets or money. We can’t control them. We control our attitudes and behaviors. Recall this life equation often in the New Year: A+B=C (Attitude leads to behavior, resulting in Consequences).
I suggest before you commit to a resolution, you take this financial savvy test.
If you wish to follow a normal budgeting path, click here.
Have a blessed New Year!
© 2018 Michel A Bell
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