Are Budgets Dead? [Ask The Reader]
29. Jul, 2009 
23 Comments
![Are Budgets Dead? [Ask The Reader]](/storage/post-images/Saving For Serenity - Gravestone by Matito.jpg?__SQUARESPACE_CACHEVERSION=1248846732508 "Are Budgets Dead? [Ask The Reader]")
Is it time that we kill our budgets? Shall we put them to rest alongside our abacuses and Charga-Plates as irrelevant relics in personal finance history? Or are they still an integral and essential part of one’s financial world?
Just yesterday, the first personal finance blogger showdown went up at Budgets Are Sexy. In the article, the author asked two of the biggest names in personal finance blogging a series of questions. The answers they given were put into a table so that we could compare the results between the two. In the comments, Matt Jabs pointed out what I and a number of other readers noticed – neither JD nor Trent use a budget.
JD, from Get Rich Slowly, wrote:
I do not use a budget. I’ve tried, but it just doesn’t work for me. The closest I come is for my personal spending. I withdraw $200 at the start of each month, and that’s my play money.
And Trent, from The Simple Dollar, answered:
I used a budget for quite a while, but I stopped using one a year or so ago. I realized that it had become a dead document – I wasn’t actively using it any more. I do keep track of my spending using Excel and I’m planning on giving Quicken a fair shot when it’s released for the Mac later this year.
When asked to elaborate, Trent commented:
I view a budget as being something like training wheels. They’re great for teaching you how to manage your money, but you eventually reach a point where it’s all either automated or an ingrained part of your behavior, at which point the time investment in a manual budget is misplaced.
So two of the biggest names in personal finance, the guys that half of us have been reading for years, the ones teaching us how they have achieved financial success, don’t use a budget. So why should we? Are budgets dead? Here are some initial thoughts on the subject.
Budgets Are Dead
Using a budget is simply a waste of time. As long as you are spending within your means, there is no need to track every single dollar that comes in and goes out. Life is short, using a budget is an inefficient use of time.
Furthermore, we now have automated machines that do that work for us. Mint.com, Rudder.com, Wesabe.com, Quicken Online, all track your money to the penny for you. Why bother spending the time figuring it out when you can have a machine do it for you? Don’t fight the age of the computer, learn how to out source tasks.
Regardless, our financial skills (should have) evolved beyond the primitive budget. While it may be good as a learning tool, eventually you’ll grow up and abandon the budget. Using a budget is like tee ball. Someday the ball will be moving, and you’re going to have to hit it anyways.
Budgets Are Alive
There’s a reason multi-million dollar corporations use a budget – they work. When you start to track your spending, budget for anticipated expenditures, you are better able to anticipate trends and adjust accordingly. You can see what computers can’t – goals, desires, dreams. Budgets help by giving possibility a concrete series of steps towards progress, something that should never be overlooked.
A budget will maximize the spending power of your dollar. It does this by ensuring that every dollar is spent wisely. Budgets allow for audits, which allow for inefficiencies in your spending record to disappear, giving you more spending power and potential in the future.
A budget is useful to keep spending in check. They’ve been at the forefront of personal finance advice for years because it offers a basis for the rest of your financial life.
Ask The Reader: Are Budgets Dead?
So what do you think? Do you budget? Are budgets on their way out? Are budgets here to stay? Sound off.
See Also:
- 7 Reasons to Stop Tracking Your Finances
- Dealing With Annual Expenses
- How to Track Your Spending with a Spending Record
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Matt Goulart
I noticed that, too, in the blogger showdown:) – I think Trent makes an interesting point about budgets as training wheels. But I also think we need to get clearer on what a budget even is – I think there’s a whole range of things that could be lumped into budgeting practices, some of which for me would always be useful – unlike using Mint.com, which I’d only use for certain things. Paying attention to small, wasteful expenses is something it might take being pointed out to – and once you’re aware of it, you might no longer need to write all of those down. If budgeting is just planning and analysis of income and expenses, I could do more of that, for sure, and it would never be "dead" to me.
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I can definitely buy into the "budgets as training wheels" concept. I think the amount of free cash flow you have each month influences this a lot too. I’m still in the get out of debt phase so, for me, saving $10 somewhere in my budget is actually useful as I can then throw that at my debt.
If you’re debt free and have a decent cushion of cash above your bills a budget probably would be a waste of time…assuming you have automated transfers to savings and bills so you don’t have to worry about it.
If you’re trying to reduce spending in order to pay off more debt, I view a budget as crucial. At the very least, you need to be tracking what you spend and have an awareness of what is being spent and what is left for debt reduction.
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Something else I just thought of as I was reading your comment, Eden. If you’re trying to get out of debt and you have a budget, or even if you’re just trying to save, then whenever you get a cash windfall, for whatever reason, it won’t just disappear. It’ll go to your debt repayment, or your savings. Score 1 more for the budget.
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I’m in favor of budgeting, and here’s why:
1) Tracking your budget is very closely linked to tracking your spending. The only way to check if you’re within your budget is to look over your expenses. Tracking your expenses is good, so having some kind of a budget is good. I’ll admit it’s not the best argument in the world because it adds a layer of indirection (i.e.: you can still track your expenses without a budget). Or does it? Because…
2) I think that most people who track their expenses without a budget actually do have a budget in the background. For example, I don’t set a specific monthly food budget, but when I’m running through the numbers at the end of the month I’ll know if I’ve spent "too much" on food. This suggests (to me) that I actually do have a food budget somewhere in my head even if I haven’t written it out on paper or explicitly committed to it.
3) There are many ways to budget. Spreadsheets of spending categories, subcategories, amounts, etc. is only one way to budget, and one size definitely does not fit all when it comes to anything financial. For example, I’m at a point where I know my money situation well enough that I budget by tracking "big expenses." Two big expenses in a month is breaking even for me. Fewer and I’m in the black, more and I’m in the red. Is it a fail safe budgeting method? Hardly. Does it work more often than not? Definitely.
4) Spending money is a learned behavior pattern and, for many people, one that’s hard to break. A strict, detailed budget is a sledgehammer of sorts when it comes to moderating someone’s expenses, though it can be very useful for a lot of folks. Many people start with a budget and then move off of it, so I can understand the "training wheels" comment from Trent. However, I feel that’s somewhat disparaging to people who stay on budgets for the long term. If I can draw some comparisons to other strong learned behaviors:
Alcohol. Many people struggle with their drinking, and many start working on it by going 30+ days without drinking. Some of them start drinking again and are able to moderate their drinking, and others stop drinking all together as it’s the only way for them to manage their behavior. Does this mean that not drinking at all is "training wheels" and that some people never graduate from it?
Eating. Many people (myself included) struggle with their eating, and many start by going on a very strict diet/eating plan/etc. Some move on from that to a more balanced eating plan, and others found that they needed the structure of a strict diet to stay on track with their goals. Does this mean that strict diets are "training wheels"?
Maybe these comparisons aren’t completely accurate, but I don’t think they’re completely inaccurate either.
((Also, long time lurker, first time poster, love your articles.
))
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Thanks for the comment, JB!
Is a budget really a budget if it isn’t written down and set in stone? Is that not more of a "spending plan" or "guide"? I guess there could be arguments either way.
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I for one am incredibly pro budget. To date my wife and I have busted $16,878 towards our debt snowball and I honestly wouldn’t have known what money to throw at it other than our active monthly budget. Yeah if I was going to write something down and believe it was a static piece of paper then I could see how you feel that way, but I’m constantly tweaking and kind find an additional 50 centers here or there, everything I can do to add to my debt payment. Now if you ask me in a year or two after we’re through this phase of our financial journey I may be a little lighter on it, but I honestly think for anyone looking to make some ground with their finances this should be the first stop.
In “The Millionaire Next Door” of 385 respondents worth more than a million dollars when asked if they used a budget 83% stated they did. So why would a millionaire need to budget? "They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way."
So if I’m to be honest I’ll take the Millionaire’s advice thank you very much.
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How about – Budgets are on life support.
If you aren’t trying to get out of debt, consistently spending less than you earn, and are content with where you’re at, there is no need to budget.
Me – I am trying to maximize my savings as much as possible to meet some lofty goals I’ve set for myself. I’ve done this by setting up auto-savings plans to pay myself first. However, since I am doing this so aggressively, I could get myself into trouble if I don’t really pay attention to my spending. So, I use Mint to track my spending and set up budgets. While it’s not the best option (or even a very good one for budgeting specifically) it’s automatic. I have my entire money strategy set up and automated which is really nice, but it could all break down if I don’t keep track of the outgoing ledger.
So, I’m not sitting down with Excel every day/week/month with a pile of receipts, but I am setting spending goals for myself in order to achieve my other financial goals faster.
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I don’t think it has to be one way or the other, I think it depends on the person. There are certain types of people who are very good at being organized and/or who need to be organized, thus creating budgets helps them. There are others, who really need discipline, so they create a budget to help discipline their spending. There are those who don’t like- or need- to follow one, and they do just fine on their own by other methods such as giving themselves an allowance each month. The list goes on, but bottom line is, money management is about what works for you personally so I don’t believe there needs to be a set way of doing things. Just find the method that works for you and stick with it!
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@ Paul – So what happens if you can control your expenses without a budget? Is that not the same thing that the millionaires do, but without the paperwork? What advantage does a budget give when the end result (controlling expenses) is the same?
@ Tyler – I would argue that you’re not actually budgeting. You’ve made your savings automatic and you keep track of your spending, but are sitting down each month and planning how much in each category you are "allowed" to spend, and then tracking your spending to ensure that you don’t go over that limit? Perhaps this is just my archaic view of budgets coming through…
@ Lucia – I absolutely agree. You have to find what works for you – but remember, as soon as it stops working for you, find something else.
I don’t think I am completely anti-budget, I’m just pushing back at some of your replies to see how I truly feel about budgets. Thanks for your help and all your comments!
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To your reply Alan, I guess I would say when you want to control your expenses how are you really doing that if you don’t actually have a budget. If I’m able to scrimp here and there to reduce my cable bill by $10 and make my own laundry detergent to save another $10 but I go out to eat a couple more times where has that money gone, and how do you know that it’s gone. To be clear budgeting for me includes tracking my expenses as well. So I lay out a plan for the month with my wife ahead of time and we follow the budget. For purchases like groceries, dining out, entertainment, clothing and gas we take the money out in cash and use the envelope budgeting method. If there’s no cash, we don’t do it. I use You Need a Budget to track all of our other purchases like bills etc. I just don’t feel like I’m really controlling anything unless I’m deciding ahead of time what’s going to happen. Agreed this doesn’t work for everyone but honestly my other methods didn’t end up working at all.
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Interesting post. I too noticed that Trent and JD don’t budget, but attribute it to the fact that they both have paid off most of their debt.
Trent would say he used one while getting debt-free I imagine, and JD has made a point of saying on his blog that he never really used a budget.
In JD’s case I think that is because his expenses for needs (housing, car, etc.) were low, but he was spending more than he earned. Simply by cutting back he was able to slowly move out of debt. If he had used a budget maybe it would have gone faster, but that’s not his style.
For some people I think budgeting works, for others it doesn’t. It’s all about figuring out what works the best for you, and your situation.
We’re a family of 6 living on one income and trying to pay off debt, so our need to be more careful is paramount. We don’t have a ton of extras like a single person, or a dual income family might.
We are living within our means, but it is hard, and finding the extra $ to pay off debt is hard for us.
So yes, I think budgets are still alive and well, but most people use them in a more loose form and call it a spending plan, tracking expenses (a la Mint, Wesabe, et al), or simply knowing that $500 on eating out is too much.
Personally I find budgets difficult, so I track expenses, and use a spending plan. I find when I budget with too many categories I underestimate our expenses.
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I happen to disagree with the budgets being "training wheels" that eventually out live their purpose. People who build houses every single day, never even consider building a house without a plan. A budget is a plan to tell your money exactly what to do. Things change from month to month which means there are always little details to manage. In fact budgets, the more you do them, the less time they take to keep up with as you become an expert in the field of budgeting.
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@Alan: I think of spending plans, expense guidelines, etc. as all being different kinds of budgets (lowercase intentional) on some level even if they aren’t Budgets (uppercase intentional). They are just different levels of granularity, but to me they are all the same thing.
@ Brad: I think you make a great point: "In fact budgets, the more you do them, the less time they take to keep up with as you become an expert in the field of budgeting." I know that this is definitely true for me with both individual and marital finances.
This also got me thinking… I think budgeting is like cooking in a way: the better you get at cooking the less you look at the recipe. That doesn’t mean recipes are training wheels, nor does it make your "internal recipe" any less of a recipe than a recipe in a book.
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@ Brad – No, you’re right. A person building a house probably wouldn’t build a house without looking at a plan. But would a carpenter build a table without a blueprint? A dresser? However, I think JB has a good point.
@ JB – Maybe "not having a budget" isn’t actually "not having a budget". It instead becomes an "internal budget", where you naturally follow a budget – whether or not you ever actually had one. Just like how a chef can cook a recipe without ever having looked at the recipe. Doesn’t mean that what he made can’t be achieved without following a recipe – just means that he is naturally good at cooking.
Hrm. More to ponder…
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Yeah I see your point Jb and Alan. I guess it really depends on the individual but it just seems to me that if you cut out the budget, then you are creating a disconnect that could eventually lead to complacency. To me a budget ensures sticking to the plan and not spending money on something I shouldn’t. I have done the "in my head" budget for most of my life and one thing that I can say for a fact, at least for me anyway, is that I know exactly what is going on and what I need to do next. Doing the in my head budget kept my situation from being crystal clear.
The other thing you should consider are the psychological effects of having a budget on paper. Studies have shown that when you write your goals down on paper they have more energy than if you simply file them away in your head. This causes the budget or list of goals to be more of a wish list than a "to do" list. People with written goals get more accomplished even if exceptions exist with some people. (a lot of Brian Tracy books convinced me of this)
Thanks for the great exchange!
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I think the budget is largely dead, but it does have value especially when climbing out of debt. The think Eden is right in that it is probably less important as you free up more money each month.
I think Trent’s training wheels is a great analogy, because most of us need the training. We need to change our relationship to money and learn that we are in control. Once we started to control our spending our monthly expenses varied very little. A running yearly average would yield almost no difference although month the month could vary some especially for things like clothing and groceries. A doesn’t provide much value when that happens.
With that said, I do think tracking your spending is a simple comprise that takes only a few minutes each weeks but can give you really important feedback about your spending and its trends.
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The personal budgets were never alive. They were a fad for financial snobs to brag about their spending and savings, a simple goal to be achieved and gloated over (ie. I’ve come in under budget 32 months in a row). Most budgets I’ve seen were a way to grasp monthly expenditures not a tracking mechanism. We set up a budget means we listed out all expenses in order to figure out how much fun money we had, we did this once and are done with it (ie when you go to a financial planner or buy life insurance). We are using a budget means we are wasting a lot of money month to month and need to figure out what we are wasting it on. I budgeted means we figured out what we were wasting our money on and how expensive it really was and have since stopped. Few budgets last more than 3 months so thank goodness they are a dying fad.
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Great post and some great comments here.
I started off being a budgeter, but that quickly turned to a tracker. My spending habits are generally the same each month, and I know when I should and shouldn’t be spending money. Plus, by using my debit card for everything, I can easily track all of my purchases online and know exactly where my money is going.
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I use a budget, but I call it a "monthly spending plan." Since a lot of our income comes from tip-based sources, I can’t create a zero based budget, but if I didn’t have an MSP we’d be in real trouble. Whenever we have extra money, instead of immediately going to debt repayment, it has to go into a savings account (in addition to the emergency fund) for those months when our income doesn’t meet our bills. When that savings account gets big enough, we can decide whether or not it pays off a debt, or if we still need it as a cushion. But if we didn’t stick to an MSP, that "extra" money would get spent and we wouldn’t have it when we needed it.
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I’m confused by their answers although I knew what both would say. They both seem to teach spending less than you earn…
…but how can you spend less than you earn without knowing how much you are spending? You know how much you are spending by tracking it with a budget. JD says he doesn’t budget, but he has a "spending plan". Six in one, half a dozen in the other. They’re the same thing.
Budgets = necessary and needed.
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I totally agree with what JB said: "This also got me thinking… I think budgeting is like cooking in a way: the better you get at cooking the less you look at the recipe. That doesn’t mean recipes are training wheels, nor does it make your "internal recipe" any less of a recipe than a recipe in a book."
I have reached a point where I do not need a budget to know where my money will go or has gone. However, I still keep a budget for a couple of reasons. There are times/months when my expenditures need to be tweaked a little, and I have to decide how to reallocate my money so that I stay within budget while taking care of the new/temporary change/spike/demand. I also keep a budget as a "money journal", a way to record my financial life.I can go back several years and tell you exactly how much money I got and where it all went, good or bad, give or take a few dollars.
Nice post!
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I guess, after reading all of your responses, a good question to ask would be, "What is a budget"? There are so many types of money tracking devices that could be labeled underneath the budget banner, from an online website like Mint.com, to an excel document, to a "money journal" to an unwritten but understood mental "law" of money.
Would be fascinating to see how many different kinds and types of budgets there are out there – perhaps as unique as our individual lives.
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Over the years I kept hoping to find the ‘ultimate budget’ system which would eliminate my debt, increase my savings and lessen financial stress. I kept track of expenses, saving every receipt, entering the information into a spreadsheet, and so on. Perhaps I was a little slow catching on, but a few years ago I realized that I was tracking expenses AFTER I’d already made them, and trying to balance what I’d spent with what came in. The expenses tended to be close to or over my income, and the debt didn’t decrease and the savings didn’t increase. Something had to change, and it did: I did the exact opposite: I planned ahead where my money would go, instead of recording where it already went. Now, I keep a simple list of monthly expenses on a spreadsheet (a Spending Plan), with my income for the pay period at the top. First, I designate charitable giving, and deduct a percentage from my income. Then, I note the fixed expenses, and deduct them from my income. Third, I designate categories for ‘funds’ (yearly expenses that go into a savings account) and place a portion of my income into each category to cover yearly expenses (this also includes an emergency fund, car repairs/replacement, vacations, taxes, insurance, Christmas/other gifts). This amount is subtracted from my income and goes into a savings account until needed. Debt repayment, thankfully, has been eliminated in recent years. Lastly are the variable expenses, with any funds that are left over: clothing, groceries, restaurants, recreation, hair care, household needs, personal spending money/allowance. This method has been very freeing: I can see exactly where my income will go, where the money will be spent and all the decisions are made ahead of time. I have seen my savings and emergency fund grow, bit by bit, as I am intentional about making it a priority instead of as an afterthought. Because my income fluctuates, I deal with what comes in, and what goes out on a bi-weekly basis, adjusting as necessary. I would recommend it to anyone to try.
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