A Budget Is Only What You Make of It

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Jenny writes in with an interesting question that was originally in this morning’s mailbag, but my answer became long enough that I decided to make it into its own post:

I went through all of the budget exercises in the financial guidebook and created a budget for myself. The only problem is that when I was done and I tried to follow it, it felt really restrictive. I stuck to it for a few months, but it was just miserable. I didn’t like how some set of rules told me how I could spend my money.

I guess I don’t understand how people make budgeting work. How did you do it?

First of all, you’re living by a lot of financial rules by simply existing in our current economy. If you have a job, bring home some pay, and keep yourself from being in too much debt, you’re already playing with a mountain of rules. You’re already making a lot of hard choices about what to buy simply by existing.

Every single one of us would behave differently if money were no object. If money were no object, I’d start construction on my dream house tomorrow, but I can’t because money is a concern. I can’t have everything that I want right now.

Thus, we prioritize. We choose to buy some things now and hold off on other things. This is the normal course of life. We can’t have everything, so we have to choose.

All a budget does is make you sit back and think about those choices. Without budgeting, we largely make those choices on instinct or on some vague idea of where we’re headed.

A budget means that you’ve sat back, thought about your choices outside of the temptations of the moment, and chosen a different path. That path depends wholly on what you want from your life and from your future.

Does it mean you give up some freedom of choice in the moment? It sure can, depending on how exactly you budget things.

The question really is how much is that freedom of choice in the moment worth? Is the ability to buy a latte whenever you feel like it worth giving up a steady path toward your financial goals?

I don’t think there’s a single correct answer to that question. For me, I’ve lived on both sides of that coin and I’ve found I prefer living a life that’s headed toward financial goals rather than a life of increased instant gratification.

Everyone is wired differently, and because of that, everyone should budget differently. An approach that might work for you, Jenny, is to automate saving for your goals. Simply make sure that you’ve got separate accounts for the goals you have for the future and set up automatic transfers from your checking into those accounts.

Then, for a while, use just your debit card for impulsive purchases. You can have just as much freedom as you always had at that point, as you’re still bumping up against the real limit of the balance of your checking account.

Yes, you won’t have as much money for free spending as you once had, but you’ll have the feeling that your money is going somewhere productive and that you’re building a better future for yourself. In the end, that’s the real goal of the budgeting process.

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17 thoughts on “A Budget Is Only What You Make of It

  1. The takeaway here for Jenny is that you don’t have to follow someone else’s rules or calculations on how much you can spend in a given category. If your budget was too restrictive, in that maybe you were told to put more in savings than allows you to be comfortable in other areas, then tweak the budget. That’s how people make budgets work, and what works for one person wouldn’t work for someone else.

  2. Trying to keep a somewhat flexible budget helps make it feel less restrictive as well. Making it so tight that there isn’t room for the occasional minor splurge is only going to foster resentment. We budget money for fun family activities every month as well as giving each other a small “allowance” for complete splurges (candy, beer, music, movies, etc).

  3. I use my budget to base what I typically have spent in a month and make adjustments for things I know I will do or buy in the month.

    I track my spending daily (like most of us PF junkees) and if the end of the month is coming and I am already hitting my budgeted spending I definitely curb my spending and put things off until next month. But I frequently will move amounts from one category to another as the month moves on (while keeping the total monthly spending in line).

    This, plus making sure I save $1000 a month for my downpayment and having all my retirement savings deducted automatically from my pay are what works for me.

    Not sure I agree with all spending must go on the debit card, I like my reward cards and cash back too much!

  4. Making a budget just to say you made a budget doesn’t work. A budget is a really good map that shows you what you’re spending, and where you might want to make changes so you can live well. A classic example is how much money many people, including me, spend eating out. When I added up what I was spending on lunches out, it was horrifying. A budget helped me realize I could do other things with that money. I still eat out some, because it’s convenient, but I am making an effort to cut back so I have money for other things. A budget really is all about helping you make choices about how you want to spend your money.

  5. Change never seems to be easy. I had a hard time with my budget for the first few months as well. It’s hard at first to say no to yourself when you’ve said yes so many times before. I have a loose budget that I adjust every month.

    In my case, I needed a mental shift with money as when I had money in my checking account, I thought I had money to spend. Just simply checking in with my budget and seeing what I have yet to pay in the month keeps me from flying off track. For instance, I’ll think I have enough money to cover everything that I want, but a quick check will remind me that I haven’t yet paid for my transit pass, or that I have the garbage bill coming up this month – so I don’t have it to spare.

    It may seem restrictive at first, but I haven’t had a credit card bill or a car payment for nearly two years and that’s truly liberating.

  6. Not sure where you got your information on MLP, but from my experience your reply is quite far off the mark. First off, most of them pay quite high dividends as they are required to throw off 90% of income. 5-8 percent is common. Second, because of some unique taxation features the relevant metric is free cash flow, not income. If you compare p/e ratio to non-mlp stocks it will not be apples to apples. Third, USUALLY the dividends they throw off are classified as return of capital, which means you dont pay immediate tax on the “dividend” In fact, often you dont pay ANY tax on the income until you sell the stock or pass it on to your heirs… Fourth, they are not great in retirement accounts because under certain circumstances part of their income can be a taxable event, even in a tax free account!!! You do NOT get a tax deduction by owning it, more properly your income is classified as return of capital…

    Having burdened you with a bunch of cumbersome details, I am not an accountant… I will tell you these can be very very lucrative. My advice if you want to own them is do your due diligence, and basically hold forever. Some fairly conservative names in the field are KMR, LINE, EPD, etc. Prices are rather volatile in relation to interest rates… On the other hand, I own a bunch that has been throwing off 22% yield on cost for years, with no taxation… Not an unpleasant experience. They can be worth a bit of hassle. They take some learning.

  7. Jenny, if making a budget for the month isn’t working like you want it to, perhaps devising a plan for one week is an option. Figure out what your take home pay is for that singular week and the bills and necessities due. Naturally, you’ll have to make budgets more frequently, however, this process made me feel less overwhelmed in the beginning (sort of eating my elephant one bite at a time).

    And Trent, shame on you. Your response came across like a reprimand. I’m sure Jenny already knows that there are money rules she’s having to follow and she can’t have everything all at once. There is no need to belabor the obvious.

  8. Deruiter – MLP: Master Limited Partnership – someone asked about it in the previous post; somehow Todo’s comment wound up here.

  9. Is she meeting any goals? No talk of getting ahead, paying down debt, nothing positive. I think this is more a condition of facing the reality of her situation. She’s blaming the “budget” for making her miserable. It’s the darn “budget’s” fault she can’t have any fun. Really?

    Budgets always feel restrictive when you’ve been ignoring reality and living much larger than your income. Given most people when they first look at a budget have been doing that, this isn’t unusual. Suddenly they can’t ignore all the poorer choices they’ve been making. However if you adjust, really identify priorities and actually make decisions based on what you can afford rather than on what you wish you could afford, the budget can let you spend money on things without guilt and with the knowledge that you’re actually getting ahead. It’s just a tool, how you use or abuse it is up to you.

  10. Back on topic, I think Trent’s advice, which was:
    An approach that might work for you, Jenny, is to automate saving for your goals.
    Should come with the caveat that you monitor your checking (or spending account, whatever) balances closely. Just because you automate your savings doesn’t mean you don’t have to account for it, via planning and budgeting or real-time awareness of the money you have on hand that is not savings.
    Another piece of advice I would give out, maybe Suze Orman isn’t right for you. Her methods are sound in theory, but perhaps someone else has a better method for you. I find her to have strong conviction behind her advice, and sometimes that’s good, but you shouldn’t misconstrue it as this is the only way to do a budget.

  11. A sidenote about a new home. Please, please consider future needs in building your new home. My dream was to build a small home on my husband’s property with amenities to help us live there if we become disabled, wide doors, open spaces, roll in shower with grab bars, counter heights to accomodate wheelchairs, etc. Note this is my dream, not his. Now I am ill and looking at possibly being in a wheelchair for a period of time. Guess what! Won’t be able to access the bathroom in our current home. Dream gone.

  12. I think Jenny may have skipped the first important part of making a budget, which is to be very clear about what you’re spending currently; that is, *just track* actual spending for a while without trying to change it.

    My first “budget” just showed what I had typically spent on certain things, and then “sticking to my budget” meant not changing my normal habits.

    Only after I got used to that did I look critically and ask, “do I get enough benefit from eating out compared to what I spend on it?” Then I started to make small changes – one fewer restaurant meal per week, etc.

    That worked better for me than setting up a brand-new and unfamiliar straitjacket and then resenting it, which it sounds like Jenny is doing. (I tried that first, and it was a disaster!)

    Of course this is easier when you’re already living basically within your means, as I was (mostly). If your money habits involve routinely spending more than you earn, then change will obviously be harder. But even so, I think a gentler approach can help with “gut” buy-in and lead to more success in the long run.

  13. Jenny made up her budget and is not satisified with it. Perhaps if she stated her goals and expectations instead of emotions, it would be easier to comment where changes could be made.

  14. “Restrictive” is a relative term. Does it feel restrictive because you can’t buy whatever you want or because you decline to go out with friends because it will cost money?

    My wife and I have an understanding that we have an open budget (within reason) for socializing and charity, but when it comes to spending on ourselves we’re pretty frugal. That prevents us from ever having to say “no” to our friends and family, but still budgeting tightly enough at home to put a good bit into savings each month.

    Best of luck finding what works best for you. That’s the key to all budgeting.

  15. # 9Evangeline, I didn’t think his post sounded like a reprimand. He sounded matter of fact, in fact.

    It sounded to me as if he were an adult speaking to an adult who was wanting to learn something, not be patted on the head and said “Now, Now, there. Don’t you worry. Its going to be all right.”

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