Over the decades I’ve watched so many good people wind up being victims of being budget mugged. It doesn’t have to be this way. It’s time to let go of budget stress and look at doing better financially in a new way.
In this podcast, I give you a new way to eliminate the budget guilt in your life.
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One of the most dreaded words in the English language is budgets. The thought of a budget feels oppressive and restrictive to many. A budget feels like self-imposed deprivation, yet it is repeated over and over and taught that a budget is the cornerstone of personal finance.
Saying that a detailed budget is essential does not make it accurate.
Let me tell you how I feel about budgets. First, budgets are bullshit, guilt-inducing documents that set most people up for more failure than success. I know that sounds like it shouldn’t be true, even though it is.
So today, I want to share some unspoken hard truths about budgets and make a confession to you as well.
A lot of reality is coming up that will help you wrap your head around this whole budgeting thing.
I’m going to give you some facts that can lead to success with money rather than unload a truck load of guilt on shame because you have not done a budget.
The thought of a traditional or typical budget can create fear, shame, and stress for many. And that’s just the tip of the iceberg. There is a whole cargo ship full of other negative emotions about this subject as well.
Budgets can also lead to fights, marital distress, and the absolute end of some relationships.
But, when it comes to finding the person you love, opposites attract. For example, a fundamental law of love and money is whether spenders attract savers or is it that savers attract spenders. I don’t know. It’s a chicken and egg problem.
But I know that people with very different beliefs about money are drawn to each other. But why that regularly happens is a topic for a future podcast. So if you want me to dive into that, let me know.
The common wisdom is budgets are necessary. But are they? Really?
Truthfully, budgets are another personal finance misconception about what we consider best practices with money. You know the problem with assuming, right? When you assume it just makes an ass out of you and me. Nobody wins.
Plenty of personal finance gurus spew about budgets and blather about assumed ways to build a budget using envelopes, apps, spreadsheets, or other tools. But, at the end of the day, let me tell you a hidden secret, it’s all bullshit.
And why is that? Simple. It’s because we’re human.
For the few that get excited about tracking every penny spent and love data points to see how they’ve done, good for you. But for most people, that’s just not in their DNA. So let’s stop feeling guilty about that. It’s okay to think budgets suck.
Far too many times, I’ve witnessed someone trying to make a budget by asking questions about past spending. What a colossal waste of time. It is doomed to fail.
You see, university studies have demonstrated that the accuracy of our memories, even over just a short period, can significantly erode. That’s a fact that can’t be disputed.
For example, research shows that people only get about thirty percent of the information correct when they try to recall it just a couple of weeks later.
And imagine the accuracy rate when estimating spending small amounts here and there from a week or month ago.
In a study I conducted, I asked people to write down an initial budget and then track their money for some time.
Almost eight out of ten were dangerously off on their spending recall. Overall they overestimated income and underestimated expenses.
So let’s be honest: how many people could accurately recall where they spent money a month ago and how much they spent? I know I wouldn’t be able to do that.
For every person or couple energized by making a budget and love following the flow of their money, six other people or relationships hate doing it.
The last thing you want to do in dealing with your money is to start by weaponizing the budget.
What do I mean by that?
When one spouse loves to track the cash, and the other does not, an incompatible budget can become a form of micromanaging and start a cascade of lies and uncomfortable stress.
I once had a couple sitting in front of me, and the husband verbally pushed the wife to account for how she spent the allowance he gave her. Yep, a lot was going on with that couple.
She made many general, vague statements. Finally, she had enough and blurted out, “I spend it on the cell phone for my lesbian lover.”
Well then. I think that wrapped that up for the day.
For the vast majority of people that feel like they are making a budget, what they are actually doing is creating a page of lies and incorrect guesses about past spending.
The budget becomes a wish list of overestimated income and underestimated expenses. But, of course, that’s not a hidden devious intent, just human nature.
Think about the way we each approach dealing with money, like your personality. Some people are outgoing, while others may be reserved or shy. Many factors and experiences create our individual human characters.
We also all have our own distinct money personalities. If you want to find out what yours is, go to my site GetOutOfDebt.org and search for the money personality quiz to take the online quiz to find out your money personality. Doing it will be enlightening and helpful for you and your significant other.
Brilliant academics have studied how people manage money, and there is no shortage of terms and phrases that all say the same; most of us suck at it. But why should we feel like failures when it might not be in our nature?
Consider this quote if you want to drag science and behavioral economic talk into why budgets are inaccurate.
“Our optimism is unduly high, and simultaneously, we exaggerate the damage of possible losses. We use mental models that frame information the way we often interpret it incompletely and wrongly. Our choices depend on the context, and we tend to anchor to useless and unspecified information. As a result, we stick to the status quo, follow our previous behavior or the others, show conservatism and avoid changes, even when they are urgent.”
That is a lot of words to say the underlying issues about how we make decisions or approach facts can be a significant factor that makes budgets worthless.
People don’t intentionally engage in poor budgeting behavior by overestimating income and underestimating expenses unless they attempt to mask a known underlying problem like compulsive spending or co-dependency. Some financial deception can be intentional. Most is not.
But overspending and excessive spending on co-dependent relationships are not really about the budget or money. There is a lot to it. It’s complicated. It will surprise you why people do this.
Stand by. I’ll be right back with the rest of the story.
When it comes to budgeting, most feel their situation is better than it actually is. By overestimating income, we think we have more, making us feel better. By underestimating expenses, it makes us feel closer to being okay.
It’s easy to overestimate income. It’s the deductions that can mug us. We think about our annual salary rather than our actual paychecks with taxes and other items subtracted.
If you want to find out the facts about income and expenses, don’t do anything fancy or complicated. For example, don’t download an app or fire up the computer.
You can just have a notebook or pad of paper on which you can write down every income and expense item for a couple of months. If you are a couple, come to an agreement first that you will do this for at least 60 days.
You can then categorize expenses and add things up at the end of that time.
This is the best and most accurate way to measure money flow, upstream and downstream. It will result in the best information to make good decisions about changes in your earnings or spending you are willing to make.
Just writing things down will have an impressive side effect. For example, recording where the money goes will reduce unconscious spending by about 20 percent.
Recording spending will start that hidden process of slowly evaluating expenditures from wants to needs. It is much better to have self-awareness about adjusting spending than having your spouse tell you to do it. Nobody likes to be nagged.
But here is a PRO TIP: If your partner is resistant to writing things down, the worst thing you can do is start categorizing and totaling the pages of data before the end of the mutually agreed tracking period.
Don’t do that.
Resist the urge.
If you do add things up ahead of time, it will make your reluctant husband or wife less honest about how they are spending and lead to incorrect data.
Unfortunately, what most people do when making a typical budget is base it on incorrect guessed data and immediately decide to cut everything fun out of their lives. So they make one of those pages of lies budgets and attempt to fudge their way out of debt.
Cutting out all the fun in your life never works unless everyone wants to play that game. So I’m telling you to NOT do that.
For most people, a few months of deprivation will lead to money-spending failure as the need to live breaks the financial wish list.
Getting out of debt isn’t about austerity. It’s about balance.
People who typically cut all the fun out of their lives rarely stick to such a budget over the long haul.
So it’s okay to leave room for a family movie night or a night to eat out. Just do it less often. In fact, you should absolutely keep things like Netflix or second-tier cable that you enjoy watching.
I once had a client that was so sad she would have to give up the fresh-cut flowers she bought each week to make her home feel joyful. That was important to her.
There was no need to be that drastic. I suggested she do it every other week or make an adjustment elsewhere to cover the cost. She decided that every other week was a good solution and was excited she didn’t have to lose that treat that was so very important to her.
She said, “everyone else told me the flowers were stupid, and I needed to cut them out.” But, of course, those other financial folks didn’t bother to ask why she felt the flowers were important to her.
Credit counselors and debt relief salespeople had failed to ask the right questions about why the flowers were important. If they had, they would have discovered that my client loved the flowers because they reminded her of her dead mother, who always brought home fresh-cut flowers.
Debt is just math wrapped in emotion; if we don’t deal with the underlying issues of why we spend, we will fail financially. As a result, cuts will wind up being unsustainable.
Another issue that trips people up is how much they should spend for each category of their lives. The ultimate reality is it doesn’t matter, and I don’t care what personal finance experts say about that. All that matters is that your life fits within your income. So if you want to spend more on housing and less on transportation than other people do, do it.
Your money isn’t given to you in little slivers or envelopes. Instead, you get a paycheck; inside, all of your expenses need to fit.
But what you absolutely must do is plan room for saving money each month. You can’t budget your way out of debt without saving money simultaneously.
If you don’t continue to save and invest for retirement, unexpected expenses will wind up on credit again. So the debt cycle will continue. Congratulations.
Oh, and here is my confession. I hate budgets, and I don’t budget. Instead, what my wife and I do is live within our income. We make sure our expenses and savings fit inside what we make. The money left over we spend on joy and things that improve our lives. It’s okay to experience pleasure without financial fear and guilt.
You can call that strategy whatever you want, but I find it creates more happiness and less stress in life.
But you know what, you do, you boo.
It’s time to eliminate the guilt about budgets and give yourself room to make money decisions that fit your personality. Be true to who you are and not what someone else says you should be.
Please find a way to live a balanced life within what you make, and you will be much happier.
Until next time, this is Steve Rhode, your Get Out of Debt Guy from GetOutOfDebt.org.
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