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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.
When I worked in wealth management, trying to get a client to pull together any sort of budget was frustrating at best. It was beyond not knowing how to do one, and much more a case of they simply didn’t want to know how much and where their money was being spent. On more than one occasion, I had a client declare firmly that they did not have a spending problem, but that we had an investment problem!
I’m curious. How do you square the old business mantra “the customer is always right” with your financial responsibility to provide sound advice—especially when the customer is clearly 100% wrong?
A budget is a great tool in the hands of someone who will stick to it.
I reviewed a budget my daughter set for herself the first year she had a real job. I helped her make it more realistic and encouraged her to spend more on things that would greatly increase her quality of life, like spending on a parking lot instead of hunting for on street parking.
She stuck to the budget and was gratified to see she actually was able to save money too.
She had a realistic plan based on her income. Then she did not exceed the budget. The second part is a behavior issue which varies from person to person.
But had an unexpected emergency cost arisen, she should not have been blamed for it.
I was in an open office area for a few years. I was astounded by the people who ordered in breakfast and lunch every day, often with coffees and soda or juices.
Maybe that’s why the refrigerator and microwave in our large kitchen area never got too dirty.
Maybe just let your friend fail, then help him figure it out. Obviously he is a smart person in his business so he does know how, he just does not want to.
My thoughts.
I’d tell Richard to stop repeating to you that he’s broke. Tell him to text you when he has a surplus at the end of the month. Unless he is a teenager, or maybe in his twenties you are not his accountant. Question: Is he an American? He sounds like one.
He’s Australian by birth. Texts to say he’s broke, so he’s skipping our semi-regular Friday beer and snooker – which we’ve been doing like clockwork for years. Silver lining: he plays a mean game, so the rest of us actually have a shot at winning for once.
Mark, as I read your article I thought your buddy is probably fun to hang out with, regardless of his financial issues. You answered that intuition above. He sounds like a fun Dude, just may need help with the occasional bar tab. 🍻
He’s definitely good craic. It certainly wouldn’t be the first time the guys have stood over his bar tab.
Here’s an idea that worked well for two of our grandkids: Keep the receipt (or jot down the items) for everything you buy. Then circle the amounts for anything you didn’t really need. At the end of the week, add up the circled amounts. And at the end of the month, total the four weekly amounts.
Now you have a clear picture of how much you could have saved. Do this for a few months, and the goal is that you’ll start resisting impulse buys.
Expect this from some kids, “Dad, you just don’t understand.”
HaHa Cheryl, There’s probably an ap for that. I can’t image young people doing it the same way we would have in the past.
Sounds like a good system. It would definitely work for an organised individual.
Dave was a devoted dad to his five kids, and a best friend to their mom, even though she divorced him. He was my best friend too. A gifted carpenter, he bailed me out of many home improvement projects when I got in over my head. He was also just like your friend when it came to money. Over 40 years of friendship, I loaned him money, helped him open saving accounts, taught him to balance a check book, and generally tried to impart my money habits on him. Lessons did not stick. Sadly, Dave passed away at the age of 63 with the same approximate negative net worth, adjusted upwards for inflation, that he had when I met him 40 years earlier. There is just no helping some people.
Dan. I think there’s a lot of truth in what you say.
I often “feel” like money is entirely too tight in between paychecks – payroll runs and hits our account, the monthly bills are paid and after the automated investments are pulled there just isn’t much left.
There is very little room for excessive consumerism when you’re aiming for a 70% savings rate! 😏
All joking aside, there are times when I think that my present life could be so much easier or at least a lot more fun if I toned it down a bit. I am having a tough time lightening up on this even though I know I should! 😖
When we were working and raising two children I used to say I just felt like the middleman. I was a pass through from money in to money out.
Of course we always paid ourselves first!
I think it’s reasonable to front-load some of your spending in the present. Enjoying life in the moment isn’t mutually exclusive with saving for the future. Now is guaranteed; next year, not so much. Maybe be a little more generous to your present self?
Mark, from what you’ve described here, it unfortunately sounds like your friend may need different help with his problem. Truly, no tracking or other system can help him if he doesn’t follow it and hold himself accountable. He is lucky to have a friend like you that is trying his best to help him “get it” and change his spending habits, even if it means a size 10 and a half (UK: 45?) in the backside now and then. I wish him success in turning things around soon for a better future.
He runs a successful one-man artisan goldsmith business—but he can’t seem to bring that same professional mindset into his personal life. He crafts other people’s dreams in gold and silver, yet constantly finds only fools gold in his spending behaviour.
Mark – your friend might use the “cash in the envelope approach”. No credit card and no online purchases permitted. Tell him to put a set amount of cash for the month in an envelope and that’s all he gets to spend. He has to record every transaction on the back of the envelope and count the leftover cash every night. The goal of this process is to increase cashflow awareness.
That’s an interesting concept. I’ve heard of envelope stuffing but not the system you’re describing. I think I’ll pass the suggestion on to him. He will be surprised, recently I’ve just resorted to taking the p**s out of him every month!
Here at Humble Dollar, we probably have many people who have the opposite problem. Monthly income $10K, budgeted for spending $5K, actually spent $3K.
When I ran my own business, I consistently paid myself way below what the profits could have supported. I simply didn’t need any more and couldn’t conceive of increasing my spending just because I could afford to.
What did you do with the rest of the profits?
I used a few different strategies for unused profits.
I don’t know about the tax rules in the US, but in the UK I could deploy retained profits into my pension account without paying any personal tax—up to a limit of approximately $75,000 per tax year. This also reduced the company’s stated profit by the amount transferred into the pension…a very effective use of excess profits.
I also held excess profits within the business as a strategic reserve—essentially corporate savings that acted as a volatility buffer for those unknown unknowns. That strategy definitely proved its worth during the COVID shutdowns.
Gee, Irish and darn smart too🤑
Oh my Mark, this is mighty close to a rant, but even worse you have inadvertently (I suspect) demonstrated the validity of my recent post on budgets. They don’t do anything. All the responsibility is on the individual which means a budget can provide false sense of security in the wrong hands.
If I’m honest, your post inspired mine. When I saw your follow-up comment about spending habits, it immediately made me think of my friend—his situation and our dynamic is exactly like I described, and he’s consistently broke by the end of every month. I also changed his name to Richard on purpose because it amused me.😉
I couldn’t agree more that knowing exactly how much you spend–on everything–is an essential first step towards controlling how much you spend going forward. I record (obsessively!) all of our expenditures on Quicken, which makes it simple to generate a retrospective report on spending during the past month, past quarter, or past year. (I would argue that a longer time frame for this information is more useful, as some significant expenditures only occur a few times (or once) per year.)
What my friend really needs is a change in his spending behavior. A budget is like a map—it shows you the way, but if you don’t have the discipline to follow the route, you’ll never reach your destination no matter how detailed that map is.
I have no idea how much we spend on anything and I have no problem controlling what we spend going forward. Why should I, why should anyone?
We simply don’t spend more than we have to spend.
The income level doesn’t matter, you simply can’t spent more than you have. And if you are lower income that may mean no money to spend beyond the necessities. Tracking or budgeting isn’t going to change anything.
Of course you can spend more than you have. Credit cards and loans – HELOCs, pay day, etc. etc. According to an article I read today, even billionaires use loans. Also, mortgages and car loans. I bought a house and at least three cars with money I didn’t have (or didn’t have without a tax penalty).
Oh my, a new brick wall. How many times have I said no credit card balance at the end of the month.
Can’t spend more than you have is the rule to follow, as in don’t do it, not a statement of fact that’s it’s not possible.
If he actually wants help, as opposed to someone to listen to him complain, tell him to write down everything he spends for a month. (Or two or three.) A budget is only one side of the equation. He needs to see both, on paper.
I suggested that for years, but people don’t want to know; perhaps doing so would make them feel guilty. I view people as “spenders” or “savers” which I’ve seen play out. I am a saver, always have been; I think it is in my DNA. I still keep a full set of books on our finances, just to track them, and for when I need to look up something. Our Social Security covers our living expenses, so I don’t really budget our spending. We spend when we need to, but are still frugal/tight with our money. Maybe it’s my Dutch grandfather and my wife’s Scottish ancestors whose genes we inherited!
He probably doesn’t need a budget. He just needs to write down expenditures (or download them into a spreadsheet 🙂 ). If there is a problem you need to track spending. I remember back when “quality” was the big initiative. W Edwards Demming was the god of quality initiatives and was famous for saying “how do you know” when people presented problems. You need to know your spending.
How will writing down his spending control his spending? Seems like his spending has to be his net income plus what he may charge on credit cards.
If he writes down his spending and sees $20 a week in Starbucks, he surely knows that already, will seeing it on a list change his habit?
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!
If you don’t do anything to increase your distributions, hence income why do you need a budget? Your spending is already under control.
The most important lesson in finance I learned was to live below my means, and invest the difference. I did this successfully without a budget for years. However, years later when I tracked my spending for the first time, I was surprised by how much I spent on some items and how little on others. I found that a budget helped me to better align my spending with my priorities.
So, do I need a budget? Of course not. My spending was under control before, but now it is spent more efficiently. To each his own.