Budgeting, like dieting, doesn’t work because folks don’t embed it in their lifestyles. Usually, it’s a chore that a finance person recommends. Is there a better alternative to achieve the goals of budgeting?
Most people spend and then try to save what is left, usually, not much, if any. Take Warren Buffet’s advice, “Do not save what is left after spending; instead, spend what is left after saving.” The question becomes: How do you determine 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 does not work for many folks. Budgeting is a means to have enough resources to achieve goals orderly, and systematically. It needs discipline, persistence, and intentions about which you are passionate. Besides, it can generate stress if you view it as a constraining tool. Then again, in today’s consumerism with cheap money, easy credit, and flashy gadgets marketed seductively, many people don’t stick to a budget. Folks aren’t prepared to give up the “deal.” Although to capture this deal, typically they spend on credit with no financial benefit.
Most people I counsel have difficulty with budgeting. If you are like them, frustrated with budgeting, try something new in 2019. However, first decide why you should do anything. Why not continue behaving as presently and spend as you wish? When I presented this question to someone whom I will call Richard, he replied, “I need to improve my financial situation, I can’t continue my current spending approach.” He explained that he needs to reduce financial stress and feel a sense of control over his finances.
Spend What’s Left After Savings
Reverting to Warren Buffet’s advice, Richard decided for 2019 that monthly he plans to identify amounts to save and then spend what’s left. Contrary to my opinion, he did not wish to specify savings goals: an item, event, or project. Instead, he decided to set aside $1000 monthly.
“Is this amount realistic?” I asked.
Richard said, “Yes, I developed the figure after reviewing my past six months’ spending and highlighting patterns. I feel sure I will save this amount and juggle what’s left.”
Richard decided to keep this famous Warren Buffet quote on his desk daily 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, critical areas where I must allocate 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. However, he is confident he can embrace the savings approach as part of his lifestyle because he believes savings are crucial to relieving financial stress. That’s why he plans to set up a monthly transfer of $1000 to a tax-free savings account. He will consider the amount available to spend as an acceptable constraint. Moreover, he knows this approach will provide comfort to handle emergencies when they arise.
“Why not add savings in a budget and work with the traditional budgeting approach?” I asked.
Richard replied, ”I don’t want to allocate and monitor funds to individual categories. I want two broad headings only: savings and spending.”
Budgeting Like Dieting Needs Commitment to Change
I suggested to Richard that when he has a critical spending category in a month, such as taxes or insurance, he allocates an amount to that category and places needed cash in an envelope. If he doesn’t want to place money in the envelope, he might write the amount 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 decided to record his monthly spending (using an app and internet banking) for one reason alone: To understand his spending pattern and spending drivers more fully. As well, he plans to get an accountability partner to discuss challenges and help him learn and grow from each month’s experience—especially missteps.
Essentially, saving and then spending what’s left means continuously prioritizing spending alternatives and accepting spending limits monthly. Richard is confident that he will succeed because he is intrinsically motivated to save, and 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 usually, it doesn’t become ingrained in folks’ lifestyles. Instead, people see it as a specific, frustrating program. Indeed, the issue isn’t budgeting, but people’s attitude to the budget. Do you think it’s time to do something radical about your finances? Richard plans to, 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
Richard has no debt except a mortgage. If he had consumer debts, I would suggest he focuses his “savings” to eliminate them before starting the new procedure.
What if you have no cash to save but must live pay-check-to-pay-check? Your only option is to work with what you have. However, in this condition, you need to work with a budget. Meanwhile, identify an amount, no matter how small, and start setting that amount aside not only to get the discipline while you work your way out of your present condition but to create an emergency fund. To build this fund, pretend you earn less than you do and save the difference.
Many people will make New Year’s resolutions to save, become better at handling money, or some similar approach to tame their finances. It is critical we understand the issue is not finances but our attitude to it. Remember this equation 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