Friday, June 5, 2015

I suck at budgeting and you probably do, too

There were only a few times in my working life that I had too much month left at the end of a paycheck. I had the luxury of a well paying (not fabulously paying) job combined with fairly modest spending desires. I'd pay my regular bills, then monitor my balance whenever I used an ATM. As funds dwindled, I'd cut back on discretionary spending. It became harder when I was an independent contractor and my income was irregular. Still, I managed okay, even with the occasional emergency expense, thanks to a rainy day account.

Now I'm retired and drawing Social Security. I'm back to a regular check. It's much smaller, but so are my expenses. Nonetheless, I need to be mindful.

There have been times at night (it's always at night, right?) when I think about my money and vow to keep better track of spending, to create a budget.

Well, I ran across an article today that says budgets are overrated. Because, duh, life is unpredictable.
No one less than Bill Harris, co-founder and CEO of online money advisory service Personal Capital, and former CEO of Intuit, claimed in an interview last year, “budgeting doesn’t work.” 
This, of course, is heresy. Just about every personal finance sort out there will tell you living without determining in advance what you will spend on housing, health care, food, transportation, and fun is a future financial disaster waiting to happen.

Right, we can't just spend willy-nilly. We need to keep within our means, especially when our means are very thin. But if budgeting isn't the answer, what is?
So what should you do? Well, it helps to think of managing your finances as surfing a wave. When I got in touch with Harris at Personal Capital to ask him about his remark from last year, he suggested people simply monitor their expenses with great frequency, because the more you track spending, the easier it is to recalibrate when needed. In fact, it’s likely you’ll cut back altogether if you watch your outflows regularly.
Ah, frequent monitoring of spending. Sort of what I'd done most of my adult life. I guess I accidentally stumbled into a good idea even though I'm financially semi-ignorant.

I think one of my take-aways from this article is to not beat yourself up if your carefully plotted budget isn't working for you. The problem might be the concept of budgeting, not you. Watch your balance (whether in the bank or the wad of cash in the coffee can), keep track of what you're spending, adjust as necessary. And, with good luck (because bad luck can really mess with us) "as necessary" won't mean "when I'm stone cold penniless."

Doing simple arithmetic, I know I can spend X dollars a day. It doesn't matter what I spend it on, only that I spend no more than that—unless I have money left over from previous days (which can happen a lot, since I don't spend every day). The discipline is in not counting ahead, not depending on future lack of spending to cover today's overspending. And, of course, the less surplus I touch, the larger my emergency fund can grow. (In my book "emergency" also includes the sudden, unexpected, overwhelming need to have some pricey fun, like flying to Tahiti.)
As for actual budgets? They offer the illusion, not the reality, of financial control.
So, give frequent spending monitoring a try and maybe you'll be able to disabuse yourself of the illusion you're awful with money.


  1. Nice to know the process I've done most of my life is now the "recommended" process. How funny is that. Kind of like the year I wore bell bottoms before they were popular with my peers. I think I've always been an odd duck; I'm just way more comfortable with it now :D

  2. Apparently I deviate from the norm.

    1. Deviation is a good thing. The norm is too normal.

  3. Dave tracks our spending then every now and then tells me how old we can afford to get now. As long as that number keeps creeping up I don't need to know anything else.

  4. How can a guy who lives in 50 square feet with no rent or utility costs spend too much money? You don't have any space to accumulate anything. But upon further thought I see there could be other issues, but it's best I don't go there.

    1. No I was thinking more of alcohol, overeating, and gambling but I guess any one or a combination of the Seven Deadly Sins will do.