Budgeting like dieting doesn’t work because people don’t integrate it into their lifestyle. It’s usually a task that a finance person recommends. Is there a better alternative to achieve the budget objectives?
Most people spend and try to save what is left, usually not much or not at all. Follow Warren Buffet’s advice: “Don’t save what’s left after you spend; instead, spend what’s left after you save.” The question is: How do you determine how much to keep?
Budgeting like dieting doesn’t work because it’s not part of a lifestyle
Let’s look at budgeting and why it doesn’t work for many people. Budgeting is a means to have enough resources to achieve objectives in an orderly and systematic way. You need discipline, persistence and goals that you are passionate about. Also, it can generate stress if you see it as a restrictive tool. On the other hand, in today’s consumerism with cheap money, easy credit, and seductively marketed flashy gadgets, many people don’t stick to a budget. People are not ready to give up the “deal”. Although, to capture this deal, they usually spend on credit without any financial benefit.
Most of the people I advise have budget difficulties. If you’re like them, frustrated with the budget, try something new in 2019. First, though, decide why you should do something. Why not continue to behave as you are now and spend as you wish? When I put this question to someone I’ll call Richard, he replied, “I need to improve my financial situation, I can’t continue like now.” He explained that he needs to reduce financial stress and have a sense of control over his finances.
Spend what’s left after savings
Going back to Warren Buffet’s advice, Richard decided that for 2019 he plans to identify amounts to save on a monthly basis and then spend what’s left. Contrary to my opinion, he did not want to specify savings goals: an item, event, or project to save. Instead, he decided to set aside $1,000 a month.
“Is this amount realistic?” I asked.
Richard said, “Yes, I developed the figure after reviewing spending for the last six months and highlighting patterns. I’m sure I’ll save this amount and juggle what’s left.”
Richard decided to keep this famous Warren Buffet quote on his desk every day 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, the critical areas I need to allocate funds to on a monthly basis, and want to generate savings,” Richard replied.
The save-first approach excites Richard. He knows that budgeting like dieting doesn’t work because it needs to be part of his lifestyle and he doesn’t plan on incorporating that behavior into his routine. However, he is confident that he can make savings a part of his lifestyle because he believes that savings are crucial to alleviating financial stress. That’s why he plans to set up a monthly transfer of $1,000 to a tax-free savings account. He will consider the amount available to spend as an acceptable constraint. Furthermore, he knows that this approach will provide comfort in handling emergencies when they arise.
“Why not add savings into a budget and work with the traditional budgeting approach?” I asked.
Richard responded, “I don’t want to allocate or track funds to individual categories. I just want two broad headings: Savings and Expenses.”
Budgeting like dieting takes commitment to change
I suggested to Richard that when he has a category of critical expenses in a month, he allocate an amount to that category and put it in an envelope. If you don’t want to put cash in the envelope, you can put a three-by-five or a different size card with an upper spending limit note on it and record the spending on the card for the month so you know when you run out of balance.
Richard agreed and decided to record his monthly spending (using an app and online banking) for one reason only: to better understand his spending pattern and the factors that drive it. In addition, he plans to get a responsible partner to discuss the challenges and help him learn and grow from each month’s experience, especially the missteps.
Essentially, saving and then spending what’s left means continually prioritizing spending alternatives and accepting spending limits on a monthly basis. You are confident that you will succeed because you are intrinsically motivated to save and you want to break the cycle of trying to budget, then failing and not saving.
What is your budget approach? Budgeting like dieting doesn’t work because it usually doesn’t become a lifestyle thing, but people see it as program specific and frustrating. Actually, the problem is not the budget, but the attitude of the people towards it. Do you think it’s time to do something radical with your finances? Richard plans to do it and I intend to work with him. I am excited to travel with him and committed to being his cheerleader.
With Consumer Debt Savings Average Debt Repayment
Richard has no debt but a mortgage. If he had consumer debts, I suggest that he focus on his “savings” to eliminate them before starting the new process.
What if you don’t have cash to save but have to live paycheck to paycheck? Your only option is to work with what you have. However, I think this condition needs to work with a budget. Identify an amount, no matter how small, and start putting that amount aside to not only gain discipline as you work your way out of your current condition, but also to build 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, better money management, or some similar approach to managing their finances. It is essential that we understand that the problem is finances, but our attitude towards it.