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I have been pondering over this post for several days. I fear it will be misinterpreted, but here goes.
I don’t feel comfortable being wealthy. Like it or not, justified or not, planned or not I meet the typical definition of wealthy. These days that seems a dirty word – even though I’m not near the eight figure mark let alone ten.
I just finished our income taxes and it actually feels like we did pay our fair share. We pay IRMAA premiums and tax on 85% of our Social Security. Don’t get me wrong, I’m not complaining. The good thing as I see it is, wealthy is better than being rich.
The terms “rich” and “wealthy” are often used interchangeably, but there’s a subtle, yet significant difference between them.
A rich person might have a high-paying job and live a lavish lifestyle, but their financial security could be vulnerable if their income suddenly stops.
A wealthy person, on the other hand, possesses assets that generate income, providing them with greater financial independence and stability.
Being rich is about having a lot of money, being wealthy is about having financial independence and security.
How do you know which you may be? I think it’s a feeling of security, but you can always measure yourself against the data. For example from the Federal Reserve on net worth. What their surveys show.
Ages 45-54 median $247,200 average $975,800
Ages 55-64 median $364,500 average $1,566,900
Ages 65-74 median $409,900 average $1,794,600
Age 75 + median $335,600 average $1,624,100
So, if you exceed these numbers you might be wealthy.
Investopedia has an article explaining net worth at various ages. Thomas J. Stanley and William D. Danko, authors of “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” offered this formula as rule of thumb:
“Ideal” Net worth = Age X Pretax Income / 10
For example if your income is $60,000 and you are age 55, your ideal net worth according to these guys is $330,000. That seems mighty low to me.
In many cases home equity will exceed that number.
On the other hand, it looks reasonable when compared with the Federal Reserve data, but I wouldn’t call it “ideal.” Actually, I don’t think it’s wealthy either.
Does it all matter? To someone getting by on $45,000, earning $100,000 may be wealthy and so on. Some people with modest earnings may have accumulated a hefty net worth.
In any case, there are better ways to be wealthy that don’t involve money. In that regard I feel we are well into ten figures.
Thank you King Richard,
I’m just fine with having excess spendable money at this time of life. Having done things throughout life to get to this point and succeeding, is very gratifying as the dream was fulfilled. I was a poor kid decades ago coming to Denver and just stuck around and worked life for the best, so I feel I should be successful from the effort.
Others who have not done the research or work may not be enamored with me.
A lady once told me, “What other people think of me, is none of my business.”
No reason to be regretful.
There is a lot of truth in that. It is difficult, especially in these current times to feel your wealth is at the right level, especially when you lose like 10% in 2 days! I imagine most Humble Dollar people are above the figures you listed. Actually, I would take Good Health over Good Wealth any day.
Agreed. A bit unfortunate that there doesn’t seem a wealth (no pun intended) of objective, trustworthy, and reliable advice about getting and staying healthy that isn’t a cover for someone else’s snake oil or paid influencer scheme. And I greatly worry that the current US climate is such that the door to those charlatans has been opened wide, with no legitimate arbiter of truth to present a (relatively) non-biased counterpoint.
this one is easy…flip the thought.
being rich is function of how much?..an accounting.
being wealthy is a function of how long?..a measure of time–food, shelter, lodging, comfort, extravagances and choices ongoing?
the object of wealth is is inter-generational..me and mine will prosper ad infinitum.
shaquille o’neal said ‘you called me wealthy?..i’m rich, the guy who signs my checks is wealthy’ and then took steps to move to that vaunted category:
‘Shaquille O’Neal’s net worth is estimated to be $500 million, primarily from his successful NBA career and various business ventures. He continues to earn around $60 million per year from endorsements and other investments.’
https://www.celebritynetworth.com/richest-athletes/nba/shaquille-oneal-net-worth/
The objective of wealth is not necessarily inter-generational. Some people want wealth just to keep score. The childfree need wealth to support themselves in old age.
“The childfree need wealth to support themselves in old age.”
Good insight – I hadn’t thought of that explicitly, but have long behaved in that direction anyway.
I don’t buy into the concept of defining nuances between ‘rich’ and ‘wealthy’. Still, I remember being astonished when I first stumbled into those net worth percentile calculators on the internet many years ago. What amazed me was the concentration of wealth at the top. For my age range, a net worth of $15 million doesn’t even get you into the top 1%. One needs a net worth around $7 million to crack the top 5%. A net worth of $1 million doesn’t even land a 62 year old in the top quartile. Still, to me and probably many others, it feels like a millionaire should be considered wealthy, even if the technical term is “mass affluent” for someone just reaching seven figures.
You could slice it by region, or job description, or race, or gender, or any other metric, but that doesn’t change the statistics about how that 1m net worth compares to all Americans. This gets at what I talked about in another part of this comment section, about trying to find a way to not be in the “wealthy” category. “Well, maybe I have more than most Americans, but if you look at just this specific subset then actually I’m average,” etc etc. I just think it’s such interesting mental gymnastics we put ourselves through. Good point with mass-affluent, too, since the financial industry has their own verbage to describes wealth. Mass affluent, high net worth Individual, ultra-high net worth Individual, and on and on.
What if half or more of that million net worth is your home equity because you lived their 30 or more years?
The median net worth of 55-64 year olds in your article is $364,000 (includes home equity I assume). So, this theoretical person/household has a net worth about three times the median. Your words: “If you exceed these numbers you may be wealthy.” Maybe they’d need to move from San Jose to Pittsburgh if they want to unlock some of that wealth for things other than housing. Still, I know what you’re saying.
My bad, as discussed in a previous post on net worth, I don’t see home equity as part of wealth. I think of spendable assets, but you have a point.
I tend to agree wealth is spendable assets, but here is the definition below of Net Worth and it includes your home. I used this definition below for the last 60 years. Some people do sell their home when they need cash. So maybe it depends on YOU.
Net worth is calculated by subtracting your total liabilities (debts) from your total assets (what you own).
Assets include items like your savings, investments, vehicles, and the market value of your home.
Liabilities may include your mortgage, loans, and other debts.
Because we are living off our assets until we reach 70 I perform a quarterly net worth, and then subtract the relatively new vehicles and house value to calculate our liquid assets as well. If our liquid assets hit a certain, although admittedly random level, that will trigger my wife, the lower wage earner to claim Social Security, in order to decrease the amount we need to withdraw from our retirement accounts.
So, my Black AMEX card doesn’t count?
I also agree it’s unwise to put you home in your net worth for spending purposes. It is most definitely an asset in your overall net worth though, and it’s not like it’s totally illiquid. You absolutely can sell you home, or cash it out in a reverse-mortgage or HELOC if you wanted to.
For people that don’t feel comfortable being ‘wealthy’, however they define it, there is a simple solution. If the discomfort is sincere and sufficiently intense, give away your money until you no longer feel you are wealthy.
On a related note, we never hear about people being uncomfortable with — or being denounced by others for — being nice, or handsome, or funny, or smart, or kind, or loyal, or generous, or athletic, or religiously devout, etc., – why is that? I understand these are more or less inherent traits, but they are developed/enhanced over one’s life, and are of little value unless applied.
My point is there are a limitless number of advantages, or gifts, one can be afforded. Why some people have these in larger quantities than others is a mystery not to be understood in this life. Wealth, however defined, is simply one of them, and not to me at least, anywhere near being the most valuable or desirable.
That’s not really true. I’ve many times heard people referred to as being too nice, or too generous, or overly smart, or devoted to fault. There is always opportunity for too much of a good thing. I also wouldn’t say it’s a mystery how some people are wealthier than others. Usually there’s pretty clear evidence telling exactly how those disparities arose.
One interesting thing about humans, as demonstrated by this post, is how complex and sometimes irrational we can be when we let our emotions affect our thinking. This is demonstrated by the use of the word “feel”. How tall you are, is an easily measured, objective thing. There is a lot of data available about average and median height, and it is easy to compare oneself to these stats and conclude where you fit into this view of the population. A man who is 5’4” is short compared to the average, and one who is 6’6” is tall in the same perspective. Yet, you can open up a very large discussion when you start asking how men feel about their height and how they think that their height has affected their lives.
Even thought there are lots of stats around about wealth, we refuse to allow ourselves to be slotted into categories because of how we feel. And, even though the dictionary (a tool on which we rely) is quite clear about the definition we want to quibble because of how we feel and what it says about how we fit into our culture. (By the way, rich is a synonym for wealthy and vice versa.)
Plainly, wealth is about having assets. It is not about income. If you have a high income and no or low assets you are not wealthy. Like everything else, wealth is a relative thing. $5 million in assets is more than $1 million and less than $10 million. I remember when my financial assets hit the seven digit level. Many people do. Just having some specific amount of assets though doesn’t dictate how you have to live your life. Everyone is different, and however we want to live ought to be okay. BUT, you should be able to be objective within your own mind when you know where you fit into the statistics. No one else needs to know that you are wealthy.
In Texas, being rich is often paraphrased “All hat, no cattle.”
You wrote, “Being rich is about having a lot of money.” Would “being rich is about spending a lot of money” more closely align with the thesis of your article? The latter aligns with the way I have always distinguished “being rich” from “being wealthy.”
Would you rather be poor?
Nice article. Thank you.
Being wealthy, to me at least, just affords a person the ability to relax a little bit. It certainly doesn’t mean flashing the fancy cars and having bragging rights to the latest big vacation. We live in a well off suburb on the coast south of Boston. Being semi retired and also being somewhat wealthy it is nice to just be to throw on jeans, play E Street radio all day and go out to dinner whenever the urge strikes. We drive fairly old cars (10 years) just because we tend to hold onto them. Funny, we’ve had to have them towed a couple of times recently. I told my wife that I wonder if the neighbors are worried about our financial situation.
I was attracted to this site initially when I saw I saw that Jonathan Clements developed it. I’ve got his “ Getting Going” articles bookmarked from the WSJ. Always appreciated his wisdom and insight. My best to him right now.
Why do you see wealthy as a dirty word? I don’t disagree that’s a growing sentiment in America, and there are definitely good reasons for it. I do notice lots of people pretending to be middle class when they have a decidedly more than middle class net worth ($1m+ net worth), so clearly they feel similarly. Where does this come from? It’s an interesting phenomenon.
I suspect that many people consider themselves middle class if they worked for a living, as opposed to those with inherited money.
It’s a result of propaganda, that is, paying fair share, misinformation about who pays what in taxes, etc and simply resent about the super wealthy and the idea they somehow take from others, block opportunities for others. I don’t see it that way at all.
Ah, but the propaganda cuts both ways, does it not? The language of “government handouts” and “welfare queens” is not exactly unloaded. One thing that cannot be denied is that wealth inequality has gotten pretty extreme these days, so I’m I’m pretty sure I’m all for propaganda on behalf of the people who have been steadily losing their share of the American pie for the last 50 years. But it’s a difference of opinion, no?
There is no limit to the size of the pie. No billionaire has taken from you or me or limited us in any way.
Wealth inequity is not a problem, influence inequality is and that is on those being influenced.
“Wealth inequality is not a problem” That’s a crazy take. All of it is a little crazy and dogmatic, but that one line is pure crazy.
Pretending? I don’t believe in living true to a stereotype (of wealth) but do believe in living true to my values. Plus why would I ever want to flaunt or call attention to financial good fortune in a world rife with scammers?
Values are one thing, wealth another. Everyone free to live their values. But having middle class values and being socioeconomically middle class are not quite the same. Yet people will still call them selves middle class when they are clearly well above that financially. What I’m getting from your comment is that you do it for safety reasons? That seems reasonable to me. Perhaps I’m misunderstanding the weight of these two definitions when people say “middle class,” maybe the values of being middle class outweigh the financial position. Thanks for your response!
It’s silly.
If you gave people a choice what percent do you think would choose middle class over rich?
Almost everybody, whether they have a high income and net worth or they’re at more modest levels, consider themselves to be middle class. It’s long been so.
Remember the TV commercial with the big boss sitting behind his desk and says “Its just my way of sticking it to the man!” His assistant nervously tells him “But, you are the man, sir!” The big boss says, looking bemused, “Yeah…I know”.
I agree completely Jonathan. I find it is often a result of how you grew up. If you grew up middle class, and had “middle class” values installed in you, that’s how you identify regardless of how successful you are later. You see a similar dynamic in other areas, like political affiliation, religious identity, or, most importantly, your favorite sports team. I don’t see an issue with this self-identification, unless it leads to excess envy or the need to criticize others to justify your self-belief.
Definitely. And there is such a difference based on location. New Jersey is the highest. The upper limit of “middle class” is $192,692 while in Mississippi it is $52,719
https://smartasset.com/data-studies/middle-class-2024
Yes, as the realtor says, location, location, location.
And there you will likely find your classification of wealth and values.
“We’r mov’n up to the east side,
finally got a piece of the pie”.
Yes, but I just wonder why that is? “Oh, I’m not one of those rich people” what’s that about? Is it a value system thing? I have middle class values (which what even are those anymore 😂) not upper class? Or is it an anchoring bias of I grew up middle class, that’s always what I’ll see myself as? I just think that’s a very interesting sort-of denial of reality. It must be a very influential part of one’s identity.
I thought this was an April Fools headline.
Me too.
Why did you think that?
Mainly because you have written similar articles on the subject and this was posted on April Fool’s Day.
I copied your headline and pasted it into a search engine and an AI chatbot. The search engine came up with some interesting topics and lists about being rich and wealthy, however, the chat box gave this response:
“It’s completely normal to have mixed feelings about wealth. Many people experience discomfort with the idea of being wealthy for various reasons, such as concerns about social status, the fear of losing connections with friends or family, or worries about how wealth might change their values or priorities.
If you’re comfortable sharing, what specifically makes you feel uneasy about the idea of being wealthy? Understanding your feelings can help you navigate them better.”
Nuff said!
To paraphrase the Bard: “To be wealthy or not to be, that is the question.”
I do think it is good to think of this from the perspectives in Sahil Bloom’s book. G and I think of our situation as fortunate. Regarding “wealth” we think we have an elegant sufficiency. We have enough of everything to be satisfied; that is, sufficient time to do the things we want to do, friends and community, mental stamina and flexibility, adequate physical ability to do the things at the top of the list and more money than we can spend.
To the list I would add an awareness of spiritual health and a loving and caring spouse.
Circumstances do intervene as is the situation with my health. Three very difficult years. Two years ago, it was recommended I go into hospice. I didn’t and here I am, by the wonders of modern medicine, the grace of God, the prayers of friends and perseverance. More friends than I thought I had. I’ve adjusted to what has been a surprising and completely unexpected turn of events. It has been an exercise in dealing with adversity.
I run the sound system for a band and at the finale practice a couple of weeks ago one of the leaders asked me how I was doing. I said “ok” and “I feel good” which is my usual reply to these types of questions. I prefer not to delve too deeply with acquaintances and friends. He looked at me and said “Norm, you can’t die for five years!” We’ll see about that; I think I’d be asking a lot. I had a procedure and exam a week ago. My urologist told me “We don’t know how to handle people like you.” He really thought I would be in hospice in 2023 and on my way to the exit. I’ve always been somewhat difficult; my radiologist once told me “You are made of stern stuff.”
I’m in a sweet spot, which may be temporary and not for long. The official prognosis is that I am “stable”, hovering or floating between this life and the next. It is a nice place to be.
I’ve adjusted to the fact that I am slowly falling apart; it is obvious, even to the naked eye. I am somewhat bionic, with tubes, associated wounds that require weekly care, etc. but I tuck it all in and carry on. My medical leash is longer than it was 6 months ago. Travel is restrained but better than it was. I am coordinating doctors and procedures and planning a two month RV trek, to begin in June. We’ll be taking our Roadtrek 210P.
Our mental health and perspective is very important, as is a sense of humor.
I admire your resolve
I’m in the middle of reading Sahil Bloom’s The Five Types of Wealth which he describes as:
If I remember, maybe I’ll post a review upon finishing it.
Thanks for another excellent thought provoking post!
No fooling either 🙂
My question when I see data such as this: are the numbers per person, or per couple, or household? Where I fall is dramatically different depending upon the above factors.
The Fed’s Survey of Consumer Finances looks at households:
https://www.federalreserve.gov/econres/scfindex.htm
Just relax man. If you can afford everything you need, have a few nice things, and go on a nice trip or two, you’re doing it right. I know you’re writing and money and retirement, but it just feels like you’re grasping for material.
I read this book, and several others Stanley wrote on his own. The formula you referenced did not give the level of wealth they suggested; it gave an average level of wealth for members of a cohort. If your wealth, using this formula, was 50% or less than predicted, you were in the bottom quartile. If your wealth was double or more you were in the top quartile. Those in between fell into the second and third quartiles. It was those in the fourth quartile who were on track toward accumulating significant wealth.
I have found the data published by the FED to be educational. I ignore the averages because ultra high wealth people skew those averages up. The medians are more useful in understanding how individual households are doing. These data were from 2023:
They also publish wealth rankings based on only assets held in defined retirement savings vehicles (strict), adding all financial assets (expansive) and all assets (like house, personal property etc.).
The median for all households: $13,000 / $29,000 / $192,084
The median for 65-69 years: $8,700 / $50,650 / $393,480
Half of all households have less than the median amounts.
Go to http://www.dqydj.com to explore the numerous ways this data is presented. It is very educational, and suggests many of our citizens are not financially on track for retirement, although a minority are likely in better shape due to unaccounted pensions they may have earned.
The ideas you’re presenting from Millionaire Next Door are not aligned with how they’re presented in the book.
The formula is a quick yardstick for are you saving a reasonable amount for your income level and age. It’s not an ideal, like if you’ve done that, you’ve gotten it exactly right.
Also, the mean/median numbers from the Fed aren’t a range, they show that for this data set. the average isn’t what we think of as in the middle and that you need to think median. (When the tails dominate the middle, average becomes a measure of redistribution to a normal curve).
Like BB below, I couldn’t care less about the semantics, and I also believe the survey from the Federal Reserve is skewed by the top .5%. Danko’s equation makes more sense to me, and not counting the equity on our home, we fare pretty well. But the things that make us feel wealthy (or whatever one chooses to call it) is our lifestyle to guaranteed income ratio, our families, and our health (knock on wood).
Regarding your opening sentence, I hope there’s not too much hate mail here. At the end of the day I see a guy that’s not arrogant, but rather grateful for the life he’s had.
The Fed’s survey includes median wealth which, by definition, isn’t skewed.
Semantic differences between rich and wealthy not worth retreading again.
Wealth is a feature of perspective. Perhaps looking at those Federal Reserve figures provides a clue – how can the median and the “average” (I assume mean) be so different? I guess because there is a subdivision of mega wealthy whose wealth in the $100m -$billions skews the mean significantly.
So compared to those individuals you’re probably not wealthy. By most ordinary joe standards and those of everyone who “has” to work to SS age because of lack of other resources, lots of people here are wealthy.
To Gen Zers who’ve already all but given up on the idea of property ownership (without an inheritance) their possibly quite high income doesn’t translate to wealth in the sense of enduring financial security.
I don’t get your last sentence at all. Why give up on property ownership with high income? Perhaps lower your standards and buy what they can afford not what they desire.
Frequently those high income jobs are in wealthy areas like NYC, Chicago, Boston, DC, Seattle, Bay Area, LA, etc etc. the home prices look out of reach there, even though there are reasonable places in other parts of the country. I don’t know if it’s just a gen Z thing, but they really get locked into life only existing in certain cities where the want to live, like the ones mentioned above. Almost all of my friends live and work in one of these cities, and frankly I don’t totally understand it.
Yep – pretty much this. They can try to save to get a deposit big enough to cover the deficit between mortgage capacity and property price but while doing so property price increases outpace their savings.
It’s hard to get across to people who breezed into their first mortgages on a single income in their 20s (and yes we know everyone faced down 15% interest rates while wearing only sackcloths) but it has the prospect of severely impacting generational wealth (or at least for those who can’t count on parental/grandparental benevolence to keep them in the game.)
It’s interesting, only in that, the book you quote, talks about how high income has never been a slam dunk causation with wealth accumulation. (it’s always been relatively easy to spend to your income and now with easy credit to outspend it)
You won’t like this, but having a budget (however you describe it) is far more causally related to wealth accumulation than income. Makes sense no? If you change the variable from income, to what’s leftover at the end of the month, it’s far easier to make sure you get the right answer, you’re far more likely to be able to grow that number and take advantage of compounding.
A budget is no guarantee, it’s a crutch, an unnecessary crutch in my opinion- which has repeatedly discussed on HD.
The formula is simple. Save and invest first, spend whatever you like, but make sure any credit cards are paid in full each month. You are thus forced to live within your means whatever that is and you are accumulating wealth.
What more is a planned budget going to do for you? In fact, it may limit savings.
Some people need crutches Dick.
Absolutely. But I can see setting a budget, both necessary and desirable, and after it’s set deciding what is left to save or putting the saving amount in the budget. I just say save as much as possible at least 10-15%, then you have the amount that must fit in the budget.
Again you’re too hung up on the word “budget” rather than the principle. What you say is budgeting. If you allocate 15% to saving first, people then have to work the 85% to cover essential and discretionary spend. If essential spend is 90% they have a problem, equally if they are treating things that are really discretionary as essential.
It’s nuts to say save as much as possible then you must live on what remains. Without an assessment of financial needs and wants how on earth does someone determine how much they can afford to save? And without at least some thought work out what they can sacrifice now to build for the future.
I don’t have a problem with a spend sensibly/frugally and save what remains approach for those that have a high enough income but even then there is a reality check or form of budget in that such people will know roughly what they are spending each month.
What would you say to a younger family member who came to you and said “I’m saving like you told me to but at the end of the month I’m always overdrawn or carrying a credit card balance?”. Would you not say “well let’s see what you’re spending on and if there are any opportunties to cut back because you really don’t want expensive consumer debt”? So you’d end up having a budgeting conversation.
We need to agree to disagree. When you write “It’s nuts to say save as much as possible then you must live on what remains. Without an assessment of financial needs and wants how on earth does someone determine how much they can afford to save?”
It’s clear we are on different pages and maybe different books
It’s not a matter of afford to save it’s what can you afford to spend after you save.
When you are paid what you net is after withholding and FICA. You can spend what’s left and no more – same idea as my no budget approach.
We’re not at all on different books. Just you get a reflex reaction when you hear the word “budget” as something you personally really dislike. Look at the derogatory language you’ve used in this thread about it.
And equally you fail to recognise that what you advocate is just reverse budgeting. If you set hard guardrails about never incurring debt it’s exactly the same outcome as living within a budget set in advance. Just possibly with more stress in the last days of the month around whether those essentials can be be paid for.
How was it when you were low on the pay ladder, had a number of small kids and a non-working spouse? Did you really save first without regard to essential expenditure?
Maybe this is a semantics issue. Deciding how much you can afford to have withheld IS budgeting. Suggest reading this Investopedia article.
Still backwards in my view. You save and then determine how much you can spend with what’s left. Spending and then trying to save is the reason many people don’t save or don’t save enough. One can always rationalize spending.
Budgeting is essentially creating a plan for how you’ll spend your money.
It’s a way to track your income and expenses to ensure that you’re using your money effectively and working towards your financial goals.
The key word is “plan”
I say you don’t need that if you first set saving toward your goal. That constrains your spending. Now, if you find saving doesn’t not allow you to pay basic necessities adjustments have to be made. But more often it’s adjusting spending on wants not needs.
There you go – you’re budgeting just a month in arrears because you wanted to go trial and error that first month…..
And of course you’re right – a budget is a plan, it’s not an immutable object. I don’t know what trauma in your life triggered you to view the word with such hostility. It feels like somewhere you want to look down on people who aren’t as good at managing their spending as you and thus you think for them to manage by living to a budget is somehow cheating against your superior virtues?
Great. A budget is a plan. If you don’t have a plan why would you be saving in the first place? If you don’t have a plan, aka budget, how do you know how big a car loan/mortgage you can afford? Whether you can afford additional savings so you can pay cash for the next car? Whether you can afford that trip to Disney or you’d better stay home?
If you do the savings before anything else it does prevent you from fooling yourself about what is necessary spending and what can be cut. That is one benefit. Personally I know how much I need to easily cover my monthly essentials (rent/food/utilities; also transport and household, but those aren’t usually every month) and have about a 30% buffer for anything I might need/want. Everything over and above that gets saved and invested. I do track all my spending, and I set expectations for what I believe I’ll spend on certain things for the month, but in most categories that’s more permission to spend so that I don’t scrimp 😅
Kathy, I think we have again entered into the semantics swamp with this budget debate. Accountants see balance sheets, engineers see spreadsheets, and I suppose others have their own vision when they hear the word budget. The important thing is for people to have an awareness of their finances.
My personal budget is simply knowing that our average spending remains below our guaranteed income sources.
Seems that’s like tracking spending not a budget. I know exactly that our spending is within our income simply by assuring that the account where our income is deposited each month has a balance at the end of the month after paying off credit cards in full. That’s not budgeting, but living within one’s means.
Budgeting would say I allocated $200 a month for gasoline, $700 for groceries, etc. and I should not exceed those amounts.
Some people do kinda need that, honestly. It’s not necessary for every category maybe. If you spend a lot on clothes every month, and want to trim back, setting a hard limit of spending might not be a bad idea. It’s just a form of self-control, one that hopefully instills more responsible spending habits. And if it really improves your life, why not?
And what happens when prices rise and there isn’t enough to pay off the credit cards? You have to revise your plan, aka budget.
You trim spending or increase income.
In other words, you change your budget. Not that increasing income is easy for most people. You know, those who aren’t wealthy.
Agreed. I have never had a budget that says I can spend $x a month on groceries. I have always been aware of the overall relationship between income and expenses. Now that my expenses exceed my SS plus pension, I know roughly what percentage of my portfolio is filling the gap (although it’s actually coming out of my money market fund, and will later come from a CD ladder). For some people a budget may sound like a straightjacket, while for others it’s a safety net.