The surprising truth about budgeting


Customers often ask, “Do I need a budget? “

When I say “Maybe, maybe not,” they look at me like I’m some weight loss guru who just gave them a Cheesy Danish.

“Wait, you are a financial planner! Aren’t you supposed to tell me to budget? “

My experience is that only about 10% of my clients budget. And most of that group came out of the womb holding a spreadsheet. It’s genetic. They love to budget. It turns them on. They just can’t imagine someone living a full life outside of keeping a budget.

The remaining 90% have no interest. And some of them don’t need it.

Here’s why: A budget is just a planning tool used to achieve a certain result. And it is this result that counts, not the path taken to get there.

The main function of a budget is to help us avoid two dangers: under-saving and overspending.

1. Under registration. We under-save when we don’t set aside enough money now for our retirement income needs later on. Ideally, you want to have the same income (adjusted for inflation) when you stop working as you do now when you retire. Your lifestyle shouldn’t have to go down.

Once upon a time, there was an effortless time saver for American workers. About 80% of an employee’s compensation was paid in the form of salary and the rest was deposited into a pension fund. Under this model, a worker could retire and continue to receive a paycheck (roughly the same amount) for life. Good deal !

But in 1978, American companies found a way to cut costs. The 401 (k) plan was introduced, which turned retirement planning upside down. Suddenly, the huge corporate expenses of funding a lifetime pension for a massive workforce were transferred to individual workers.

Today, the math is roughly the same: workers need to save between 15% and 20% of their income in order to make a smooth transition to retirement without a significant downgrade.

2. Excessive spending. Let’s make it simple. If you save 15-20% of your income and don’t rack up credit card (or other consumer) debt to fund your life, you’re not overspending. Period.

Unfortunately, this is not true for most people. We live life to the fullest, spending the last dime of our paychecks and charging even more on our credit cards. Then a medical bill, auto repair, or a leaking roof occurs and we wave our fists to the sky, moaning, “Why me, my God? “

If you overspend, I don’t care if you earn airline miles or earn reward points. Just as people with a drinking problem shouldn’t go to bars, people with spending problems shouldn’t walk around with a pocket full of plastic. Cancel these cards. Then go back and read my column from last week on how to start saving money.

So let’s get back to the original question: should you create a budget? If you’re already saving enough and spending wisely, no.

But if you’re saving and overspending, creating a budget is a smart first step. A budget can be a useful tool. But it is not magic. If that doesn’t help you develop good spending and savings habits, it’s actually a waste of time.

A budget that doesn’t lead to these important habits isn’t worth the paper it’s printed on.

I discuss spending, saving, and other wealth building strategies in my new eBook “How To Put Money Worries In Your Rearview Mirror – The Roadmap To Financial Freedom.” It’s free and a quick read. Email me at [email protected] and I will get it to you immediately.

Argent Advisors, Inc. is an SEC registered investment adviser. A copy of our current written statement regarding our advisory services and fees is available upon request. Please see important disclosure information at

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