Budgeting, like dieting, doesn’t work because folks don’t embed it in their lifestyles. Usually, it’s a chore a finance person recommends. Is there a better alternative to achieve the goals of budgeting?
Most people spend and 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 examine 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 goals about which you are passionate. Besides, viewing it as a constraining tool can generate stress. 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 I would call Richard, he replied, “I need to improve my financial situation. I can’t continue as currently.” 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, 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 to save towards. 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 will save this amount and juggle what’s left.”
Richard kept 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 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 a 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 in handling 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, he allocates an amount to that category and places it in an envelope. If he doesn’t want to place cash in the envelope, he might put a three-by-five or different-sized card with a note of the upper spending limit and record spending on the card in the month to know when he exhausts the balance.
Richard agreed and decided to record his monthly spending (using an app and internet banking) for one reason: to understand his spending pattern and drivers fully. He also 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 spending what’s left means continuously prioritizing spending alternatives and accepting spending limits monthly. He is confident he will succeed because he is intrinsically motivated to save, and he wants to break the cycle of trying to budget, failing, and not saving.
How is your budgeting approach? Budgeting, like dieting, doesn’t work because it usually doesn’t become a lifestyle matter, but people see it as a specific, frustrating program. The issue isn’t budgeting but people’s attitude to it. 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.
Consumer Debt Savings Mean Debt Repayment
Richard has no debt but a mortgage. If he had consumer debts, I would suggest he focuses his “savings” on eliminating 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, I believe this condition you need to work with a budget. Identify an amount, no matter how small, and start setting that aside to get discipline while you work out of your present condition and create an emergency fund. To create this fund, pretend you earn less and save the difference.
Many people make a new year’s resolution to save, be better at handling money, or some similar approach to taming their finances. We must understand the issue is the finances and our attitude to it.
