I apologize in advance to those of you that are budgeters. Don’t stop what you are doing if it’s working for you. You are a rare breed. This message is for the rest of us that don’t have your level of discipline.
I have been working with clients over the last decade and one thing most have in common is that they don’t like budgeting. Those that do are usually married to someone that REALLY hates budgeting. I don’t like it either, and like many of you, eventually I end up not doing the things I don’t like. So I am going to take a leap and say that for most of us, budgeting doesn’t work. I am in the business of giving advice to clients that produces results. For most people, budgets just don’t produce.
Let me explain. I used to think that if people would track what they spend, they would control their spending… not true. Sometimes monthly budgeting can actually cause people to spend more. For example, I didn’t spend all of my entertainment budget this month, so let’s go out this weekend! Hey, I have some money to burn!
So then my assumption was that debt payments made monthly cash flow difficult. Sometimes this was true, but for the majority, debt isn’t the cause of the problem. The problem is that we spend what we have… ALL OF IT. If we get a raise, we spend more, if we get an inheritance, we get a bigger house or a new “toy.” Frankly, sometimes our next raise is spent before we ever get it!
I have come to believe that regardless of our level of income, we simply don’t force enough into savings. We just spend. “Wait!” you say. “If I made more, I could save more.” But from what I’ve seen, this just isn’t true either. Spending everything we have is a universal problem regardless of your level of income.
I am not saying you should not have an idea of what you spend, because you should. You should use technology or do an exercise to look back through 3 months of expenses and see what it takes to live your current lifestyle. You should make this process as easy as possible. Break your expenses into major fixed categories like savings, taxes, insurance premiums, charitable giving, and debt payments. Then create the last category: Living Expenses. These are generally the fun expenses that are always changing. The total monthly average for your living expenses is what it takes to really live your current life style.
Most budgets fail, not because of the monthly items, but because of one-time events, like an unplanned trip, too much splurging on Christmas gifts for the kids, or a shopping spree. But that’s all fun spending. Sometimes budgets fail because we failed to plan for that new roof, the new car, or our kids’ college expenses. One-off expenses are the items we should focus on and budget for.
I have come to believe the we will in some shape or form spend all that we have. So what do we do? We evaluate our spending and then find an amount that doesn’t cause pain and start by forcing that amount to savings automatically. Then we increase that percentage automatically at set periods of time. Gradually, of course. Before you know it, your savings will be where they need to be.
We then plan for big items, like a vacation or a new roof or your next vehicle, and spend the rest. It doesn’t matter where you spend your money, it matters how much you spend. If you force out savings ahead of spending, then who cares if you eat out all the time, go to Starbucks as often as you shower, or buy a new iPhone?
If you are reading this and you are someone who thinks that one day you will just figure everything out, let me warn you... most people don’t. I’d love the opportunity to help you start planning. I have some key industry technology available and have developed practical strategies that can assist you in changing the way you think about and use money. Planning is important and can be an easy process if you’re willing to devote a little energy to it.
Doing nothing produces nothing, so start doing something today... a simple email is a great place to start.