Are you as far out in left field about budgeting as I’ve managed to get? I’ve discovered I’ve been making some highly counterproductive assumptions. As in: You only have to budget when you don’t have enough money.
For a while now, I’ve wrong-headedly taken the position that successful people don’t have to pay attention to what they are spending. It’s easy to believe that in our culture. Even the US Congress avoids getting on with it. But in doing that, we’re missing the whole point of the process.
Knowing how to spend money–balancing what’s coming in and going out–is probably one of the top five life skills. That’s what budgeting really is. But I’ve been confusing budgeting with “don’t spend any money.” Oops.
When I took over a line management job in the natural gas industry years ago, I was blessed with a great set of supervisors who had most of what needed to done well in hand. The one big thing I needed to get them to change was the way they budgeted. They always said they needed more money than they spent. This was considered saintly, but it was actually costing the company money. The money you need to operate on has to remain liquid. You can’t use it for other opportunities or put it in a higher-yielding financial vehicle.
The same is true for budgeting, especially in retirement. If you spend the money you have mindlessly on day to day stuff that doesn’t make a real difference in your quality of life, you don’t have it when the opportunity for that dream month in Tuscany comes along. Not paying attention to what you are spending and how dooms you to mediocrity at best. It can also make you a lot poorer than you have to be.
Budgeting helps you keep your resources focused on what’s most important to you.
But most of us think of it more like a diet. We even phrase it the same way. We put ourselves on a diet—or a budget. It’s the drastic step that results from a lack of discipline. What a waste of a good process. Think of it as a wise financial nutrition plan rather than a diet. Crash diets don’t work very well and neither does crash budgeting. You starve yourself to shed those pounds—or save that cash. Then you get weary of denying yourself, and pretty soon you weigh what you did before you started—or your bank account has shrunk back to its former puny size.
A nutrition plan is about taking good care of yourself not “losing weight” (or “saving money”). You look at what you want to achieve overall and figure out the best way to get that done. The actions themselves are positive rather than some version of privation.
The big thing missing from the “don’t spend money” approach is that it’s not set up to look at whether what you’re spending money on is satisfying. You might be cutting out the equivalent of your favorite kind of ice cream and leaving the calories for bread pudding—which you happen to hate—intact. Life is better if we learn to pay attention to this piece.
The essentials usually make a big difference, so they will naturally be part of what you choose. Not having a place to sleep is unthinkable for most of us. Having something to eat ranks right up there as a priority. But each of us is going to see the rest of where the available money should go a little differently. Part of the decision is, of course, how much you have to work with. But part is also what you like most and what else you want to spend your money on.
Learning to manage any limited resource—money, time, emotional energy—improves your quality of life. When you are maximizing what you do with what you have, you’re richer, regardless of how much money you have.
If you don’t like the nutrition analogy, go with how my son (the finance guy) sees it. To him, budgeting is a roadmap. “This is where we want to go; so we need to take this road—and then this one and this one—to get there.”
Budgeting is a balancing process. If you’ve never used a budget and need some help to get going, there are plenty of resources out there. Surf online, talk to a financial advisor, or browse either real or virtual bookshelves for ways to go about it.
Finding the sweet spot between not buying something lovely and indulging yourself is a worthy effort. If you view budgeting as a form of self-care rather than the cause of privation, it becomes a very handy tool indeed.
Excuse me while I go work on mine….
Mary Lloyd is a speaker and consultant and author of Supercharged Retirement: Ditch the Rocking Chair, Trash the Remote, and Do What You Love. She has also recently released an e-book on Kindle titled 39 Bites of Wisdom: Little Lessons on Getting Life Right. For more, see her website www.mining-silver.com.