TO "B." or not to "B.": Reflections on budgeting

First Jeff Yeager in his latest book “The Cheapskate Next Door,” then financial journalist Liz Weston. Now it’s my turn to come out, so to speak, as a financial professional who doesn’t “budget,” at least not in the traditional way. Don’t get me wrong! As many of my clients can attest, I don’t dispute for a minute the value of expense tracking. In fact, I am convinced that thoughtful spending is tea most powerful tool in everyone’s financial planning toolkit.

However, whether you call it the “B” word, a spending plan, cash flow management, or [insert euphemism here]I tend to agree with many of my clients who wrinkle their noses in horror and recoil at the prospect of tracking expenses at a detailed level. The very thought of spending so much time looking at small numbers, perhaps some red ones, is off-putting enough to many that it simply isn’t done, no matter how great the potential reward.

And therein lies the problem, as well as the solution. As a wise woman said: “There is no one right way to organize anything, be it your things, your space or your time”…or in this case, your living expenses. Okay, so the “wise woman” is my friend Sue West, a Certified Organizing Coach®, and her point was that no matter what you’re trying to organize, you don’t need someone else’s idea of ​​the perfect system. Rather, you need a system that works to you. Otherwise, you probably won’t maintain it, you won’t end up with any more useful information than you had before, and all the bells and whistles it presents will go to waste.

According to Sue, there are 3 key elements to designing a system that works for you: people, process and product. When it comes to keeping track of expenses, these include:

  1. Your style: Are you detail-oriented or a “big picture” type of person? Are you an early adopter or someone who prefers the “tried and true”? Are you a road warrior or are you more at home?
  2. Your Money Personality: Those who are natural savers may not need to monitor spending as closely as those who tend to spend.
  3. Your Goals: If you’ve funded most or all of your goals and have a solid cash cushion, you may not need to dig as deep into your cash flow statement as someone trying to pay off old debt, change careers, and buy a new home while saving for college and retirement for your kids.
  4. Time Constraints: If you’re training for an Ironman triathlon while studying for a master’s degree in physics, have a full-time job, and are raising triplets, a full-blown “traditional” budgeting process probably won’t work for you. If your schedule is a little less overloaded and you love to do this kind of thing, a more detailed solution may make sense.

Whatever your situation, there’s a system that’s right for you, and the factors described combine to point you to the right mix of process and product. I have seen people do an amazing job of getting the most out of their money by writing down expenses daily using a pencil and graph paper, calculator optional. At the other end of the spectrum, the more mobile and tech-savvy among us may need a fully automated portable solution, like and its portable app.

As for me, with all the time I spend on the computer parsing small numbers into tables, I’ve taken the simpler and less time-consuming path, something I call “reverse budgeting.” Basically, this involves making a decision once a year, after reviewing last year’s spending, about the target spending for the coming year. After checking the savings levels vs. Goal funding status, how much is left to spend on, well, living per month? Once a month, this amount is transferred to an account whose sole purpose is to cover living expenses. If that account falls below your predefined acceptable level, that’s a red flag that something is not going as planned. It could be overspending, it could be under budget. Either way, it’s time to dig into the details, figure out what’s going on, and if necessary, change course while there’s still plenty of time to keep the overall financial plan on track.

And that, not spending hours inputting, categorizing, and analyzing data, is really the goal of this entire exercise: to keep the gap between what’s in and what’s out for living expenses big enough that long-term goals don’t fall by the wayside. When you find the system that allows you to do that without hindering your style, you’ll have found your way to “B.”

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