Are you saving 15% of your take-home pay? And have you been doing that for most of your working life?
If so, then don’t even think about using the B-word — you don’t need to even go there. Just enjoy the 85% you’re spending — enjoy it thoroughly — and be smart about how you stow the other 15%. And from there, simply don’t worry, be happy.
But if you’re spending everything you bring home or, worse, you’re spending more and going further and further into debt, then please say hello to my little friend — that little B-word of a B-word.
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I refer, of course, to budgeting.
Budgeting is for people who need to keep their spending in check for one reason or another.
Budgeting, unto itself, is not fun. In fact, for most folks, it’s the opposite of fun. So it should be avoided at all (or at least nearly all) costs.
If you’re saving enough (and for most of us, saving 15% of take-home is plenty enough . . . but note well that this means that you have 15% of your take-home pay going into a fully taxable account or otherwise invested the hard way, over and above the pre-take-home money being auto-saved the easy way into a retirement account before you ever get your grubby little money-spending mitts on it . . . ) then, by definition, you don’t have to keep your spending any further in check than it already is. In fact, you might want to live it up some, amoeba. So you needn’t budget yourself (it even sounds painful when you say it that way, doesn’t it?)
But if that’s you, then you’re a rare critter indeed, because most of us have plenty of reason to need to keep our spending in check.
Those reasons can range from the wholly arithmetic (e.g., because the numbers in our lives just don’t paint a happy picture currently and, when projected out over time, paint an even unhappier picture) to the wholly non-arithmetic (e.g., because we just doesn’t feel right about spending what we’re spending, even though our spending is totally in scale with our financial situation). This latter sort of budgeting need is, in isolation, rare, but it does happen that some people, though very well off and at very little risk of ever being in a financially weak situation, just don’t feel right spending money the way they’re spending it, so that they need to do some budgeting in order to feel right — to feel right at home with the way they’re spending.
Far more common, though, is when our spending is, in actuality, way out of scale with our income. Here, then, t’is to the budgeting trough we shall go.
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Budgeting can take lots of different forms. Dave Ramsey is all about using physical objects to set up limits on future spending. So he advises people to make out a written budget, line-item by line-item, and to then implement each line-item limit of that budget by placing precisely a month’s-worth of the budgeted spend for each line-item — in the form of good ol’ fashioned green dollars/cash money — into labeled envelopes for each of those line-items, so that, when the cash is gone in a given envelope, so, too, is your spend for that line-item finito for the rest of the given month.
And that, dear reader, is what I meant when I said physical objects in the paragraph above: green dollars/cash money inside of labeled envelopes which is either physically there (meaning you haven’t spent your budget for that item for the month yet) or physically not there (meaning you have spent it, and no more soup for you!). And, heavens to murgatroyd, don’t you ever use or even think about using a credit card, that least-physical manifestation of money and spending-power that ever walked the face of this ol’ earth of ours. Dave hates credit cards, period, and unequivocally.
At the other end of things is the software approach to budgeting, which tends to be more about using . . . er . . . um . . . credit cards and downloads and Internet scrapes and such to do some detailed monitoring of your spend, and then adjusting in response to what you learn. Mint.com and Quicken are two tools commonly used here — both products from Intuit, which also puts out TurboTax — but there are plenty of others.
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I’m a software-oriented guy, but I’m also not a big fan of expense-tracking software because I’ve seen too many people who, though they have access to lots of great information through the expense-tracking software they’re using, they’ve also failed to glean much usueful understanding via all that information. Their eyes doth see, but their thoughts doth not gel, as in mucho data/nada knowledge.
That puts me squarely into the half-Ramsey/half software camp, trying, as ever, to get the best of both worlds.
To do that I often advise folks to use a nearer thy numbers to thee approach, which means that they begin by first deciding how to categorize their spending because, as that categorization scheme working-out unfolds, what with dead ends and categories that don’t work or too frequently overlap, nothing teaches them more about their spending than trying to put all of their spends into a dozen or a dozen and a half categories. By contrast, canned software programs and Internet scrapes typically have spending categories mostly built in, which curtails much of the benefit of doing the categorization task, with the result being that software users often have less understanding — less feel — for what their spend looks like than would otherwise be the case.
And then, once folks have gotten their spending categories mostly straightened out, I advise them to turn their attention to tracking their spending in earnest — on a once-a-week or more frequent basis and to the penny — at least for the time being and probably for at least a couple of months, after which they can assess what’s going where and what needs to happen to lock in that that 15% rate mentioned at the start of this piece.
If from then on they’re keeping within their savings goal, then it’s buh bye budget. But if not, then the spend-tracking task remains as part of their standard financial ops, until such time as they are doing the savings part naturally, at which point, it’s buy bye budget.
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So does any of that budgeting stuff sound like fun? Does it sound like something you’d look forward to doing? Yech, right?
Budgeting is not fun.
So here we have yet one more reason to save enough money — save enough and then you needn’t concern yourself with the other, less-fun side of the equation.
You might think they’re the same thing. Arithmetically they more or less are. Humanly, though, they’re most definitely not.