No one really taught me how to budget. Not my parents, not my undergrad financial planning professor or any of the professors who were teaching the personal financial planning courses that went towards a personal financial planning certificate. In my memory, there was at most, a short chapter on it, with a fugly, useless template and advice that was certainly a total unrealistic crap pile.
When I got a job assisting a financial planner, my boss, who had been a financial planner for seven years, asked me - a zygote in the professional world - what I thought is the best method was for budgeting. And that’s when all the failing started.
Together, my boss and I failed a lot of clients. Fumble after fumble, we made unrealistic budgets that clients didn’t adhere to. We trusted clients when they estimated how much they were spending, so that’s how we gave them bad targets. We had no real way of keeping track, so our budgets always looked to the past and never really helped in the present. We rarely gave them tools to keep track or the tools we finally suggested were terrible, so often it was a failure due to false starts.
Finally and only until a couple of years ago, I found a budgeting method that actually works for me and for a lot of my clients. If you’re still struggling with budgeting or you have in the past, I feel you. It sucks getting off track, especially if you have to dip into savings or use a credit card. In no particular order, here’s all the crap that came to light in my process of failing at budgeting.
You suck at things, we all do
Sometimes you suck at something for a long time or kind of forever. I know you don’t want to hear that in our current age of self actualization, but being average isn’t so bad. Through the process of sucking and trying different approaches, you’ll emerge having learned a lot about yourself and what works for you and your life. Even if you’re never really excellent at budgeting, hopefully over time you’ll suck a little bit less. Forget awesome, go for marginally less crappy.
The only wrong way to budget is to use a system that doesn’t work for you
I’ve tried using a spreadsheet. Failed. I’ve tried using a sophisticated app like YNAB. Failed. I tried a less gnarly app like Mint. Failed. I never tried the envelope method because that involved touching too much paper and cash. So, technically I failed before I even started.
For so many years, I thought I had to be this person who cared deeply about my budget because of the type of work I do. If I couldn’t keep a budget, can I really work in finance, as a personal financial planner? Eventually, when I left the financial planning world, I finally found a method that worked and it’s more like an anti-budget than a budget. It’s not perfect, but it’s much better than it ever has been in the past. The moral of the story is budgeting is like so many things in life, you have to find what works for you.
Lifestyle is the main driver of your budget
It feels irresponsible to say that your lifestyle drives your financial decisions, but coming up in the financial planning world, I was always taught that. When I really think about it, it makes total sense. Caveat: I’ve lived in Los Angeles my entire working life and the types of clients I have worked with are the types of people that can consider their lifestyle when making financial decisions.
There’s the very popular advice that all budgets should be allocated as such: 50% should go to needs, 30% should go to wants and 20% should go to savings. This sounds lovely, but it’s not true for everyone at all times.
For example, let’s say you’re just starting out, you live in a major city, where you can earn a living wage now, but you need to put in about 5-7 years before you’ll be able to get the skills to earn more money. And you have to be in said major city because it’s where the industry you’re in is in. What about then? For those people, 60 / 20 / 20 isn’t terrible and they could even make 70 / 10 / 20 work in the short-term.
For some people, it’s even more precarious, but they’re willing to bet on the risk-reward trade off or maybe they have a safety net of family support or maybe a community that depends on geography. Or sometimes you don’t have the means to move to a place with a cheaper cost of living, where you don’t know anyone and you’re not sure how the job market is.
And then there are the people who want to retire at 35. Their budget might look more like 25 / 25 / 50. If they’re totally fine with the lifestyle that comes along with saving 50% of their income, I don’t see a problem.
Life is dynamic and always in flux, just as your budget will be
The fun and terror of life is that we don’t know what will happen. Everyday there is the possibility that something incredible, or mundane, or horrifying can happen. The nature of life can’t be tamed. It especially cannot be tamed for something as lame and boring and man-made as budgeting.
So long as you are always meeting your obligations - rent, utilities, student loan payments, savings - everything else will be in flux. Friends will invite you out, your dog will need 19 teeth removed, you’ll get invited to a birthday party or a bachelor party or you’ll need to see a sick family member.
Don’t use this as an excuse to go off course, use this a prescription that you should set up systems that will allow you to have the space to play within them. It’s like coloring within the lines; you don’t need to be obsessively on target, but as long as you’re not totally disregarding the structure, the outcome will only vary in non-material ways.
We are not rational
Humans entertain me to no end. We love to argue our rationality. We buy something because it was on sale. Or we do all the research and all the factors pointed to the reasonable Mazda. I’ve watched too many very smart, rational people make terrible decisions about money to realize that we want to be rational, but we’re not. We’re living this human experience, which is a deeply emotional one. And to try to discount that, to say, no, I’m rational - well, I think that’s how you screw up because you think this huge factor isn’t a factor.
In American society, getting married and having kids are two life-altering decisions that aren’t remotely rational, in fact, they’re totally irrational. And if you are also “following your passion”, that’s the third prong of your irrational approach to attacking life. If you’re irrational in those major ways, why would you all of a sudden be rational in the minor ways? I’m not saying, “Fuck it. I’m irrational, who cares?”. I am saying, “If you mostly cannot be trusted with decision making, then set up and use systems that mostly don’t fail when you’re human-ing all over the place."
It’s a confrontation
It’s easy to scoff at budgeting like its simple math in an ugly spreadsheet. Budgeting is simple, but not always easy. It’s like meditation, which is also very simple, but not easy. And both meditation and budgeting are tools that help you cope and deal with this experience you’re having called life. But whether or not you meditate, although it is a simple concept, it’s not necessarily easy because of what it forces you to confront - yourself. Budgeting is not very different. And people avoid it for the same reason, because of what it forces them to confront - themselves.
Budgeting could force you to confront the profound inequality in our society. It could push you to face all of your decisions that lead you to where you are now. It could make you feel powerless, realizing the system we’re locked into. You might look at your actions and weigh those against your idea of yourself. What if the numbers show you that your values are different than what you say they are? Maybe your idea of yourself is being challenged.
Get to the root of it
If you make pretty good money, enough to pay your bills, save for the future and have cash left over to buy joy-sparking, dumb shit you don’t need, you probably don’t have any big issues. You probably don’t need to do anything drastic or crazy to feel better about budgeting.
But if you’re regularly tapping into savings or using a credit card because you don’t have the cash, it would behoove you to get to the root. Sometimes falling short of your budget is a bigger issue - lack of self-awareness, years of under earning, addiction to shopping, feeling like you don’t deserve to feel secure or you’re not worthy of resources. Figuring out how to get to the root is outside of my scope of knowledge, so I don’t have any real advice, expect to seek help from the right professionals. It's is a big choice to make and it ultimately might require you to drastically change your life.
I met a woman from a very wealthy family. She got an allowance and she never budgeted and she always used credit cards. She was deeply aware of her privilege and I think she felt bad about it or at least realized the absurdity of it all. That’s why she burned through all her money; she didn’t want it, she felt bad about having it, she felt like she didn’t necessarily deserve it.