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IF EVERYONE WOULD just follow my advice when managing their money, all our financial problems would evaporate.
I’m kidding, I’m kidding.
From recently viewing a YouTube video, I learned it’s necessary to track all spending, have a budget and be mindful of spending habits. Nope and nope—but yes to watching our spending habits.
Managing money boils down to discipline and responsibility. You may not be able to keep up with the Joneses, take that vacation you desire or get that next tattoo. But that’s because you don’t have sufficient income—and a budget won’t change that.
A budget also won’t help with the dreaded “r” word: rationalizations. “It’s 40% off.” “It’s one of a kind.” “I have the cash.” “It’s only a cup of coffee.” I’ll skip, “Gee, Jenny down the street has one.” That’s for kids.
My contention: Tracking spending and attempting to follow a budget are crutches for undisciplined people. A strict budget says you can’t control yourself or your spending. I’d argue that budgets are stressful and depressing, and may even encourage some people to give up on managing their finances.
Budgets also get the savings process backward. It should be save first and spend second. If you don’t save first, you may never save—because “there’s nothing left over.” That, of course, is the lament of folks who claim to be living paycheck to paycheck.
The two most widespread financial faults are lifestyle creep and not saving for either short- or long-term goals. If you receive a raise or any extra income, increasing your savings should be the first move.
Yes, you need to have a good idea of what you spend on necessities each month. It only takes a few months to determine that, and then you’re done. If your take-home pay is net of retirement savings—or you have your savings automatically deducted from your checking account—then what you have left is all the money you can spend.
At the end of the month, if there’s nothing left in your checking account, you are—in a sense—living paycheck to paycheck. But so what? As long as savings are part of the equation and have been socked away, you should be in good shape. That said, if you can’t pay off your credit card balances in full, you’re living above your means—budget or no budget.
This is where discipline and responsibility come in. Saying “no” to yourself, your spouse and your children may be necessary. Take a close look at your habitual spending and at what costs are getting charged to your credit cards.
Eliminating items is not going to make you popular. In the long run, however, having lots of stuff, while drowning in debt and stressing out every month about your bleak financial future, doesn’t sound appealing, either.
Reducing savings is not an option. Gather the family and explain why.
Can everyone follow my methods? Perhaps not those in or near poverty. What about other folks? Look around you at what people are buying, the frivolous stores that keep doing business and our nation’s growing credit card debt. It sure seems like there’s plenty of room to cut spending.
As usual some excellent points but I don’t quite understand your seeming disdain for budgeting. Every budget I’ve ever had or helped someone develop starts with savings and generosity. You say “Tracking spending and attempting to follow a budget are crutches for undisciplined people. A strict budget says you can’t control yourself or your spending. I’d argue that budgets are stressful and depressing.” I disagree. Being in perpetual debt and not seeing a way out are far more stressful and depressing than becoming more aware of spending, savings and how to improve. Nothing wrong with getting help and most of us need crutches from time to time in our life. Whether it be for saving, investing or hip replacements (and I’ve needed them for all three)!
I’ve been thinking about this thread a lot and writing comments in my own head, which is where they’ll stay. Coming back to just say thank you Don for this comment.
I agree with what you say about perpetual debt, but that gets back to my premise about behavior.
If a person is unaware of what they spend- a concept beyond my comprehension – and can’t control their spending so as to accumulate debt, why would we think they would or could stick with a budget?
Really, how hard is it to become aware of ones finances if there is a desire to do so? As I have said often, make saving automatic first, spend the rest with the caveat that any amounts charged must be paid in full each month. You are then living within your means and who cares how you spend the money?
Getting on that track and realizing there is not enough cash to keep going means you then must assess how you spend what you have. Then cut spending or increase income.
The problem isn’t lack of a budget, but the lack of self-discipline and long-term financial goals IMO.That’s why I say a budget is a crutch.
We never had a budget when working, and still don’t now that we are retired and living off of investments while waiting to claim social security at 70. While working we had 401K dollars deducted from our paycheck, and increased our contributions each year when received raises. We are not typical US consumers either. If we didn’t have the money we didn’t buy things.
Bought a basic cab 2WD Tacoma in 2002 for 13K, owned for 17 years. Would have liked a crew cab and 4WD, but cinder blocks a studded snow tires worked fine in NH snow.
I begrudgingly sold it (still was running fine) and bought a new loaded one (cash), when my wife convinced me I better buy a new one now to enjoy before I got too old.
Justified the more expensive one this time due to all the money I saved driving a beater, and the fact that at 62 will be my last truck.
Nothing wrong with that.
The world is divided into those who have a spending problem and those who have a saving problem. The oversavers don’t get much publicity, because they are a small minority of the general population.
However, at financial web sites, there is a large percentage of people who save too much and don’t spend enough…..like at this one.
Good point. You can save too much. I’ve known people with high net worths and low happiness because they haven’t learned how to enjoy what they have and be generous with it. The goal isn’t to get the most money in life but to get the most of life with the money we have.
Save too much? Who is this person? Exactly what is saving too much?
Maybe that could be HD’s new slogan: “HumbleDollar–for people who have a saving problem.”
In 42 years in the investment business, I learned that most clients did not have an income problem (although they thought they did), they had a spending problem. “Spend less than you earn” is the right advice, but it implies that you have some idea what you are spending. Sadly – at least in my experience – most people have only a hazy understanding of how and where they spend their money. I don’t us an app on my iPhone to track my expenses, but I do have rough spending budget and a very good idea of our cash sources.
You’re probably right, I never lived with a budget, but I can tell you exactly how we spend our money and I can tell you what is in each of our bank accounts. The basic spending is routine and the rest is limited to what’s in our checking account, except for agreed upon significant purchases.
i hear ya about a, ‘spending problem’. my wife of 30 years became disabled
10 years in. she took over the books and i worked. she was meticulous AND
relentless. tho we paid off the house, i always felt under the budget gun and that there was never enough money. when she died suddenly i realized a HUGE part of the money was going out the door for, ‘shinies’. i have not balanced my check book in 4 years, have cut back on work, and have never been happier. currently the bank acct. is quite healthy and will retire soon.
Nice article, Mr. Quinn. I enjoy your common sense approach. Two personal finance principles come to mind: 1) live within our mean. 2) pay ourselves first. Thank you for sharing your insights via HD here. Wish you a wonderful and healthy year in 2023!
Extremely good article.
Personal finance budgets are a drag.
And very good insight: “budgets get the savings process backward”.
Rule 1: Spend less than you earn.
Rule 2. Set up automatic withdrawal to savings account every paycheck.
You look at life differently once you have at least $5000 in a savings account.
Rule 3: Pay off all your credit card balances in full every month. If you don’t, you are violating Rule 1.
Jonathan better watch out. He’s got you gaining on him.
I have an iphone app where I track every dollar I spend. Once my spend reaches the threshold I set for the month, I just stop.
Once I ignored tracking my spend and learned later on, that I spent thousands more that I expected. It is amazing how $s can bleed out at every opportunity when you aren’t paying attention.
The phrase “what you can’t measure, you can’t improve” comes to mind.
“Death by a thousand cuts” – although the cuts maybe small, it all adds up.
I hear what you say, but cannot understand how that could happen. I either spend cash or use a credit card, but before I do, I know where the money will come from at the end of the month to pay the bill in full.
A budget needs to follow the spending for a while before the spending can follow the budget. You should build a good sense for your “flow” – so you can tell each month simply by “feel” whether you are above or below what is normal for things like food, credit cards, utilities, gas and medical costs. And you should also be able to tell if a shift is a blip or something more. You should be able to trust your sixth sense on this. Also, when one makes a major shift – e.g., retirement or a physical move to another state – it is important to keep track of all your one-time (new water heater or landscaping work) or large periodic expenses (generator maintenance, HVAC adjustments, termite checks) for a few years. Those are situations where new costs can surprise you, usually in a bad way, but sometimes in a good way. A strict budget is probably needed for those whose income is tight; otherwise, you should be able to work by how hard you press down or let up on your spending accelerator as you go.
There is a strip mall nearby that causes me to wonder at times … It contains a nail salon/gun shop/store that sells lottery tickets/tanning salon and last but not least a “gourmet cupcake” shop … Don’t think a middle class person ever needs to frequent these places but they sure do
to paraphrase m. twain,’ we have taken 1,000 useless luxuries and turned them into necessities.’
Exactly
Getting a handle on the spend for necessities during the transition from the accumulation to distribution stage of your life is important. We never budgeted but lived within our means while working. Now that we’re retired and waiting to take SS as late as possible, we found a budget a good idea.
We also discovered that we had been subscribing to Britbox for several years thinking that the other was using it.
lol!
o, we are so polite!
…and so british…
Agree on re-adjusting financial behavior from accumulation to decumulation. A friend nearing retirement told me he had spent his life learning how to save. Once he retired he was going to have to learn how to spend.
What is the difference between living within your means and living with a budget?
In other words, if an item is not in your budget, do you not spend? Would your budget require reducing spending in one item if another is a bit higher in a month?
I’m thinking maybe you adjusted spending to match your retirement income.
About that Britbox, give it another try, great shows in many categories. In fact, we watch Britbox more than any other channel or stream.
Very well said, Mr. Quinn. My two cents worth, when I was employed, now retired, several co-workers were convinced that any money in equities, bonds, even short term treasuries, etc., was far too risky. So, lottery tickets of all stripes were the answer! ( no further comment needed) I really think that financial education in our schools would be tremendously beneficial. I always like your articles, always spot on.
Excellent point. I should have mentioned the lottery which, in effect, is a regressive tax on lower income Americans.
Last week I was in buying my one a week lottery ticket – I cut back from three years ago. In front of me was a blue collar worker of some kind- she had a yellow road worker vest on. She turned in a few winning tickets and the bought $50 more.
Behind her was a very elder woman – I should talk – who bought an array of scratch off and other tickets costing nearly $100. Maybe she had her Bentley parked outside, I don’t know, but I kind of doubt it.