Hi Friendos,
I recently listened to an interview with a financial journalist who says that people don’t need a budget and that budgeting doesn’t work. She published a book called “You Don’t Need a Budget” which I won’t link to because…come on. She says budget culture is toxic, just like diet culture. She says “Money should be easy” and managing it “should feel simple, fun and freeing, regardless of your circumstances.” There is an awful lot of shaming out there in money land, which is entirely unhelpful, but it’s also not helpful to pretend like the only two ways to budget are Complete Austerity Now and Forever or Easy Breezy Wellness.
This author also says you don’t need an emergency fund but you should create a “comfort fund” you can use in case of unplanned medical needs of unexpected loss of income. That’s an emergency fund! Personal finance is hard enough without inventing new lingo for existing concepts, making false arguments just to grab attention, or dictating how people should feel about money. Especially when the pitch is aimed squarely at women, as if money somehow works differently because you have boobs?!? 🤮
The best approach to budgeting depends on the situation and the person. I think it’s similar to time management. I have days when, in order to achieve what I want, it is very important to strictly plan out how I will spend my time. Be in the shower by this time, out the door by that time. I only get 30 minutes to do the grocery shop done and then I need to get home, vacuum and tidy, and turn to the next thing. Some days like that are totally exhausting and sometimes they feel like a triumph. Other days I set no alarm clock and can spend my time based on whatever happens to come along. Sometimes I use tools to help keep me on track, like phone alarms and calendar reminders, but not always. Personally, I struggle with getting out the door on time, so that’s an area where I use multiple tools to help myself out.
Here are a few examples of how different budgeting approaches supported people in different situations.
Example #1: the budget showed the need for additional income
I had a client who wanted to make a plan for getting out debt. Before we met, they identified the outstanding balance on each of their debts and corresponding interest rate. I am sure this process was not easy for them. When we met, they shared how their debt balance had not been increasing, but it also was not decreasing.
During our discussion, we identified their key monthly expenses for housing, transportation, food, utilities, and medical care, as well as the monthly cost for interest on their debt. Their lifestyle was extremely modest and by laying out their monthly income (incoming cash flow) alongside their key expenses (outgoing cash flow), we could understand why things always felt so hard: after paying for just the basics, all the extra money was absorbed by paying interest on the debt. Without that interest expense, they could pay down the balances and then have some money for the occasional nice thing. I suggested trying to increase their income, perhaps with an extra part-time job, understanding that it would not need to be forever, just long enough to get rid of the current debt and interest payments. The traditional-style budget helped clarify that this person was currently living within their means and did not need some different planning technique, budgeting app, or way to think about money – they just needed some extra income.
Example #2: following the budget helped curb spending
I had a client who wanted the option to retire early, in 10-15 years, but did not have much of a nest egg or a plan to build one. They had an above-median income and shared housing expenses with a partner, allowing for a very comfortable lifestyle. Their future pension would cover a lot of future expenses, but not everything, and they could see that they needed to do some saving on their own to cover the rest. They also carried some credit card balances and wanted to pay those off.
We mapped out their monthly spending and discussed a plan to allocate a chunk of money each month to paying off credit cards. They would be able to cover all their required expenses, pay down the credit cards, and still have some discretionary money each month. And they did it! They followed the plan for several months and their credit card debt was gone. Then, they shifted to allocating a chunk of money each month to retirement saving. They still had money available for fun things each month, just not quite as much as before. They said that it took a few months to get used to the new amounts, but they were adjusting, and they felt a lot better about their trajectory for the future.
Example #3: the non-budget budget was sufficient
My client was in a very busy phase of life, working 12-15 hour days. They were spending less than they made, but did have some student loan debt they’d have to start repaying soon. They also wanted to ensure they saved enough for retirement and knew this was easier to do if they started on it earlier. They wanted to be more intentional with their money and have a plan.
We discussed the traditional budgeting framework: monthly income, spending for requirements, debt paydown, retirement saving, and discretionary spending. They were already getting the full employer match on their 401k, so they were doing a great job in claiming all of their compensation and doing some retirement saving, though they wanted to do a bit more. Thinking about their numbers, they felt confident that they would have their student loans paid off within a few years. After the debt was gone, they could put even more to retirement. They were living well within their means, so it was just a matter of selecting those monthly amounts for debt paydown and retirement saving, and then getting that implemented each month.
They knew people who used budgeting apps and had elaborate ways of tracking what they spent…did they need to do that? I could see they didn’t want to! They were living within their means, had a realistic plan to build financial security, and weren’t going to spend any differently if they knew how much they spent on food or other categories each month. I suggested they not bother with budgeting apps or expense tracking during this busy time of life. They could always introduce those tools later on if they wanted to get really dialed in on things, or not if they wanted to spend their time in other ways.
Budgeting just means making a plan for your money. That’s it. Like any kind of plan, a budget can be general or detailed, complicated or simple. Lots of people don’t do formal “Budgets,” but they are still making plans with their money.
If you have no problem spending less than you make, a simple plan is maybe a great match for your needs. You can set aside $x for retirement and then feel free to spend the rest. If you struggle to spend less than you make, you may benefit from a more detailed plan. If you have a lot of debt relative to your income, you can benefit by explicitly incorporating debt paydown into your spending plan (aka, your budget). If you are unhappy with how you are spending your money, a more detailed plan will probably help. You should match your needs to your budgeting approach, use whatever tools are helpful for you, feel free to experiment to find what works, and change your approach whenever your needs change.
In middle school I learned that the phrase “Know Thyself” was inscribed on the Temple of Apollo at Delphi. The Greeks considered Delphi to be the “navel of the earth,” marked by the Omphalos stone.
If you struggle with budgeting, is it because you are using tools that you hate? Is your income too low to support a reasonable lifestyle? Do you make plans that are too austere to be realistic? Are your plans always upended by something you did not anticipate? Why do you think that is happening? As hard and scary as it is, try to heed the inscription at Delphi. Engage in some self-reflection and come up with a hypothesis for what is causing your struggle. Then, try something new and see if the change helps. If not, you can always try something else.
If you’d like to talk about budgeting or any other money-related topics, please join me for free for my first monthly “Tax Me Anything” meeting at 11am ET on June 14th. I’ll be doing these free meetings on the second Saturday of every month, same time, same Zoom meeting ID: 897 1710 3456. I hope you’ll drop by!
-Stephanie
Frequently Taxed Questions 