FREE NEWSLETTER
Go to main Forum page »
I’ve listened to my friend Richard complain about being broke for years now. Every month, like clockwork, around the 20th, I hear the same thing: “Dude, I’m broke again. Don’t know what happened.”
I know exactly what happened. The same thing that happened last month, and the month before that.
Richard makes decent money, he’s a goldsmith for goodness sake. He shouldn’t be living on ramen for the final ten days of every month. He’s got a budget too, showed it to me once. A color-coded spreadsheet. Very impressive. Completely useless, as it turns out.
“The math doesn’t add up,” he told me once. “I’ve done the budget. But the money just… disappears.”
Here’s what I suspect from knowing people like Richard: a budget is just a plan. It’s the big picture of where your money should go. But Richard doesn’t live in spreadsheet land where you make rational decisions. He lives in the real world, where he’s tired on Wednesday and orders DoorDash. Where he runs into Target for paper towels and comes out with $60 worth of stuff he didn’t need.
The budget says $300 for groceries. Richard’s habits say “buy the name brand” and “shop when you’re starving” and “yeah, those chips do look good.”
I asked him once: “Do you actually follow the budget, or just make it and then ignore it?” He looked offended. “I try to follow it. But life gets in the way.” Life doesn’t get in the way. His habits get in the way. The hundreds of tiny decisions he makes every week that have nothing to do with his spreadsheet.
In my mind the simple truth is this: better habits make budgeting easier. When you automate savings, shop with a list to avoid impulse buys, and wait 24 hours before non-essential purchases, the budget manages itself.
But Richard doesn’t want to hear about habits. Habits sound like work. He wants a magic spreadsheet that forces better decisions without him thinking about it. I’ve given up trying to fix Richard’s budget. His budget is fine. What needs fixing is the bit between seeing a delivery app and ordering from it…for the fourth time that week.
Fix the budget if the math genuinely doesn’t add up, if you don’t earn enough for essentials.
Fix the habits if you’re like Richard: earning enough to live comfortably but somehow broke by the 20th, wondering where it all went.
Richard texted yesterday: “Broke again. The budget’s not working.” The budget’s working fine, Richard. You’re just not I replied back. The time before I told him you can’t math your way out of a behaviour problem…next time I’m telling him a spreadsheet doesn’t teach impulse control. Maybe someday it’ll click for him.
Many get by just fine without following a formal budget and I respect that.
Like many retirees, our income is determined by annual distributions from our IRAs and social security benefits, minus taxes. Our spending plan, or “budget” guides how we allocate those dollars. I find that realistic assumptions and flexibility are key. I have revised our budget many times. But what I do not do is increase the portfolio distributions to allow higher spending. Like any tool, if used wisely it can be useful. But any failures are mine, not the plan’s which I put in place. Of course, it can be convenient to blame someone else at times. I have told a couple friends that my financial manager could have done a better job last year. I may or may not include the fact that I am that manager!