People hate BUDGETS. I hate budgets. I do not even like the word budget. I rarely use it in my financial planning practice because it conjures up feelings of scarcity, pain, and memories of parents fighting. Whatever it conjures up for you, I’m sure it’s not good.
Don’t have a budget.
Pretty provocative, right? A financial planner telling you to throw away a budget. Don’t have budget at least in the traditional sense. Here’s the thing:
- Everyone has to spend within their means or they end up in monstrous debt or worse.
- Everyone needs to save for a Rainy Day and retirement or they will end up eating cat food or worse.
Those are two facts of life, but you can embrace those facts of life without feeling scarcity.
Everyone has limits on their spending. Big entertainers and athletes do or we would not see so many of them go broke. Same with hedge fund guys and people who inherit wealth. The difference is degree. If you are part of the 1% or even the 0.1%, you have limits. Their limits may be amounts that you and I cannot even ponder, but they are limits nonetheless. So do not feel isolated by needing to set limits. Think of it as one of the things you have in common with [enter name of rich pop star here].
That brings me to fact of life number 3: your lifestyle will expand with your income.
Generally (thanks, to aspirational marketing), it will expand just past your income so you feel like you’re always yearning for that next big thing. Yes, I know you NEED an Apple Watch.
Because your lifestyle desires will expand with each increase in your income, you will always need limits so you do not go broke reaching for that very same next big thing. Face it, the limits are here to stay. Find yours and embrace it. Buy all the stuff you want up to that limit and then STOP.
That’s why budgets are a mirage that nobody actually ever holds onto. Budgets are built from the bottom up. $70 for gas, $30 for dry cleaning, $50 for coffee, $150 for eating out, $80 for sports. It won’t work.
Think from the TOP DOWN: $280 for ANYTHING I WANT ($50 coffee + $150 eating out + $80 sports) and if I stick in that limit, I will have enough money left in my account for gas and dry cleaning, which I need every month.
I’ve said it before and I will say it again: watch only your full discretionary spending once you know how much you have for full discretionary money each month. Set the limit and subtract each time you pay for something full discretionary. STOP when/before you get to $0. No budgets, no problem…