Budgeting: “I’ll wait until next year”
By: Rob Victor
December is the time of year that people get ready for the holiday season, spend money, and push things off until after the new year. The majority of people would rank a financial goal in their top priorities. Looking back at research that Scranton University did on new year resolutions in 2015: “spend less/save more” was third on the list. People know that money; saving more, spending less, investing, buying/selling real estate, paying down debt, or just budgeting, is important in their everyday livelihood.
The problem with this whole notion of “I’ll wait until next year” or “I’ll get to it once I do this…” is that it isn’t priority. In my personal opinion, things that are high on the priority list get done, and things that aren’t do not. Looking back at the research that Scranton University did in 2015: 8% of Americans usually accomplish news year’s resolution goals that they set for themselves, 24% fail to make their goals, and the others either infrequently make their goals, or never had any goals to start with.
I think it is vital to have financial goals, but more importantly to not push them off. In the financial world there will always be the next car, the update on the house, or the vacation. These things allow people to push off saving until after the house, the car, the vacation…etc. As you all know, there will always be something and which is exactly where budgeting comes into play.
No one likes having a budget because there is a thought that having a budget means having less “fun” because we can’t spend money on things we want to do. That may be the furthest thing from the truth. Think of budgeting as driving on the highway: it’s there to keep us in our lane, avoid trouble, and get us where we want to go. Budgeting allows people to see what they are truly spending money on month to month. Budgeting isn’t the issue, the bigger issue is that most people don’t even have a budget. Moneywise did a poll that showed 1 out of every 3 Americans actually prepare a detailed written monthly budget. Ironically, the first hurdle to overcome in money management is to actually develop a budget.
First things first, let’s not wait any longer. Take a look at your last 3 months spending habits (credit card statements, investment statements, bank statements, etc.) and start to categorize where you are spending money. Some of the basic categories could be as follows: dining out, groceries, gas, electric, water, mortgage/rent, power, cable, cell phone, car insurance, savings, car payment, student loan payments, etc. Second, let’s try and identify the areas that you are succeeding in (cable bill is only 20$ a month because you use Sling TV) and the areas that you may struggle in (going out/food/dining out where you are spending 1600$). If you are spending 1600$ a month on food/eating out/going out for a single person, then I would probably say you are overspending. Think about 30 days in a month, that’s almost 53$ a day on food/going out for one person. What if you could budget to only spend 30$ a day on food? Now you are only spending 900$ a month and saving roughly 700$.
In my opinion, budgets can be strict or loose, but in reality, they should be used to keep people from overspending. Financially, budgeting is the first step to allow people to feel comfortable with saving, investing, or spending.
Finally, I think the biggest misconception with budgeting is that is “needed” when people are young to help with saving/investing or with people that aren’t great with money. Some of the best people I know financially don’t need to save any more money and they still run off of a budget. Budgeting is important in the accumulation phase of life, but just as important in the distribution phase of life. When someone has done a great job of budgeting throughout life, it hopefully will put them in a position to retire at a reasonable age. Ideally, the discipline of having a budget won’t change once they step into retirement. A budget in retirement details which accounts we pull money from and how often we pull from those accounts depending on if the market is up or down. As you can imagine, when the market is up we may be able to spend more money than our budget allows; whereas, when it is down we may have to tighten the spending that year.
Don’t allow the new year to creep up on you and “put off” getting your budget in order for not only saving money, but spending money in retirement. Remember, without a budget we are throwing a dart at the wall and hoping we hit the bullseye.