Convince me it's worth budgeting

[buildmybudget]

I met with some friends last Friday and we had an excellent discussion about the Fed and the history of finance and then someone brought up my website. Usually people want to hear why I created BuildMyBudget, but this person was bringing it up because she couldn't see why there was any point to managing her budget.

In her case it was probably because she is a full time student, isn't employed, and can't see a way to avoid riding her credit cards until she is finished with school. It was very sad...here is someone getting their MBA and they had literally given up on trying to manage their financial situation.

Regardless, I fought hard to convince her that it is worth trying to minimize expenses, cut coupons, try to find extra income, look for scholarships, and generally try to manage her financial situation better. I don't know if I got through, but I'm wondering if anyone on here has encountered anyone like that lately and what you said to help them to help make a difference.

I've always thought: It's never too late to try and turn things around, and it's never to late to begin trying.

[Slug]

I regularly have these conversations with "smart" people who could be doing so much more. I find it necessary to try and balance my own obsessive personal finance issues with those on the other extreme. However, I must admit that though I track everything, front-load big purchases on the early end of my credit card billing cycle, and game every credit card reward I can, I have never really budgeted. I have never balanced a checkbook. I just don't feel the need when I keep a sufficient float in my checking account, continue to save, and track every expenditure through Yodlee. So I guess my answer is it's not worth the time to budget (for me).

[minnie1928]

I have a good friend of mine that I've "counseled" over the years trying to explain the importance of budgeting. She lives paycheck to paycheck, has very little (if any) retirement savings, her husband works 2 jobs, they lease all their cars, etc. They have a serious case of "gots to have its" and blow their money on toys (music, phones, video games, etc.) while trying to figure out how to pay for the mortgage. To this day, nothing has changed. I've stopped trying to show her that there's a better way.

FWIW - she works in the accounting department of her employer.

[am_vanquish]

The word "budget" simply has too many negative connotations. Although it's a bit cheesy, I'll usually describe my budget as an "optimization plan" or even a "target spending summary." It really is a budget, but I don't use it to limit my spending. I use it as a tool to build wealth & ensure that I'm spending my money on the things I enjoy most.

P.S. Do we get some kind of prize for helping you develop a marketing campaign for your site?

[Broken Arrow]

Er, well, alright.

Budgeting isn't just... numbers. It's a way to examine oneself to see what is meaningful to you and what is not. A meaningful life is built from meaningful actions, and one way to examine and even quantify meaningful actions is through a budget.

On the practical front, even if one is mired in debt, it can help minimize the downward slide. And especially when one is in debt, those actions matter even more. After all, you're not just going into X dollars in debt, but that's X dollars plus interest you have to pay, compounded over how ever many years it will take to pay that off, minus whatever opportunity costs that has been wasted because you couldn't afford it because you are in debt.

Budgeting matters all the time, regardless of financial situations. Even if civilization as we know it implodes in 2012, I would still set up a budget to ration the number cans of spam I have left. Know what I mean?

As for cast studies, I'll pretty much preach to anybody who is willing to listen. I know that, over the years, my friends have gotten a smattering of it here or there. I try not to force my point of view, but I'll gladly share it if they ask.

[creditcardfree]

My budgeting is not so defined that we can only spend $X on groceries, or $X on entertainment. However, I realize that the less I spend the more I have for retirement, or paying off debt, or saving for a Disney World vacation. My budget reflects my (our) priorities.

If I have anyone sitting in front of me complaining they don't have money for $X, then I challenge them on how they are working to accomplish that goal...or if it is a true goal. Do you really value your daily latte, more than the satisfaction of paying off debt, saving for retirement, or not having a balance on a credit card? For me the answer is no. If they really value the latte, but not the vacation...then stop complaining about not having $X for vacation!!

[KTP]

Ok.

We started a budget for the first time this past year and are on schedule to save about $70,000 in the first year alone. Our income has not drastically increased each year, perhaps about 5% or so a year.

What if we had started to budget 10 years ago instead of spending tons of money on junk I am constantly moving out of the way or $100+ a night eating out?

I never really realized how much more fun some cash in the bank is than being overweight from eating at Outback and other places 5 or 6 times a week.

Of course the downside here is if everyone budgets, there is going to be a lot more unemployment in the service industry

[disneysteve]

Originally Posted by creditcardfree

My budgeting is not so defined that we can only spend $X on groceries, or $X on entertainment. However, I realize that the less I spend the more I have for retirement, or paying off debt, or saving for a Disney World vacation. My budget reflects my (our) priorities.

If I have anyone sitting in front of me complaining they don't have money for $X, then I challenge them on how they are working to accomplish that goal...or if it is a true goal. Do you really value your daily latte, more than the satisfaction of paying off debt, saving for retirement, or not having a balance on a credit card? For me the answer is no. If they really value the latte, but not the vacation...then stop complaining about not having $X for vacation!!

This is pretty much how we work, too. We do not have a budget that designates $X for groceries and $Y for dining out and $Z for clothing. We do have a budget that designates set amounts for savings, though. How the remainder gets spent doesn't really matter and can vary considerably from week to week and month to month.

I always get annoyed when someone says, "I can't afford that" when what they really mean is "I choose to spend my money elsewhere so I've got nothing left." For example, don't say you can't afford to contribute to a Roth account if you go to a movie every weekend and order out for lunch 5 days a week. Oh, and you also lease your car and get a new cell phone every 6 months.

I think we need to replace the word "budget" with something that people don't associate with restrictions. I like something like "personal financial plan" because it isn't just about what you do and don't spend. It is a lot more than that. It is also about what you save, how you will meet your goals, etc.

[disneysteve]

Originally Posted by KTP

Of course the downside here is if everyone budgets, there is going to be a lot more unemployment in the service industry

I don't think that is necessarily true. It all depends on priorities. Maybe instead of buying a $40,000 car, someone will decide that the car isn't that important but they really enjoy dining out or travel. So they buy a $15,000 car and that frees up $25,000 that they can then spend on other things.

We dine out more than ever, but it is because we have our finances well under control that we are able to do so.

I think the service industry - restaurants, hotels, etc. - could benefit from people managing their money better. The sector that would probably suffer is retail as people stop spending money on crap they don't need.

I'd much rather spend on experiences than on things.

[sandrark]

I have found my people!

I call it a Spending Plan. Sounds much more exciting to those who like to spend. And then they see it's got things like..taxes! And health insurance/FSA set-asides! And car maintenance! And car registration! And higher heating bills in the winter!

With a couple of line items like spending money, food, and Costco. Then, maybe, it's not so exciting.

I started in 1993 by saving $25 per month. I'm now saving $1500+ per month. I do so because I may not be able to work until 62, as originally planned, due to a partial disability. So the urgency is real to me, although not to lots of others who see me and think "sprightly" and "energetic."

I have several friends and family members who live paycheck to paycheck, spend it all on eating out and mall trips and a $50K Mercedes convertible that now sits in the garage after 2 accidents...and they are mad at us because we're "flaunting our wealth" by taking a vacation to the Caribbean. As one friend jokingly put it..."You're spending money that we don't have!"

But we have it to travel because THAT'S our focus! That's what we strive for! No one seems to notice what we DON'T do to achieve what we WANT to do.

Sandi

[LivingAlmostLarge]

Budget has negative connotations. I personally hate budgeting. I more have a flexible spending account. I know we can spend $2k/month on stuff. Either eating out, going out, cooking, travel, etc.

I'm also terrible at budgeting in general. My DH REFUSES to live to a budget. If he wants something he wants it NOW. No waiting, give him the money, because he's so cheap usually that he knows he should have the money NOW. Make it happen.

So to us we have to do an annual budget and I have to tweak and make sure we spend what we can.

[disneysteve]

Originally Posted by KTP

Of course the downside here is if everyone budgets, there is going to be a lot more unemployment in the service industry

The other comment I'd make on this is that I know many people who take a vacation on credit, take a year to pay it off, then take another vacation on credit and take a year to pay that off, and so on.

With proper budgeting, they could flip that cycle around. Save for a year, then take a vacation for cash. Then save for another year and take another vacation for cash, and so on.

Either way, the vacation gets taken but the second way, it doesn't result in a bunch of extra money spent on interest fees making the actual cost lower, freeing up some money for other things.

[buildmybudget]

It definitely seems that once a person hits a certain income level, they stop paying attention to what's being spent and where. Like you said, LivingAlmostLarge, people hate to budget and would rather stick their head in the sand than take control over their finances. I think that mindset is tragic, actually, because to live debt free is truly a great feeling! I'm not 100% there yet either(car, undergrad, house), but I can't wait to be.

[Inkstain82]

The idea that the economy would collapse if people slowed down their spending and stopped using credit is a bit shaky to me.

It might cause a temporary blip, but in the long run you'd see the cost of loans going down (since banks would have more money to loan), thus encouraging entreprenuership and creating more jobs, stimulating the economy.

[lovcom]

Originally Posted by buildmybudget

I've always thought: It's never too late to try and turn things around, and it's never to late to begin trying.

Actually, there are in fact times when it is too late.

And this should be the number one reason to use when trying to convince people of creating and staying on a budget.

When someone is 65, with no pot to piss in, nothing in retirement, $40,000+ in CC debt, no career, nothing, it is in fact too late...they have financial cancer and it is nearly always terminal.

[buildmybudget]

Originally Posted by lovcom

Actually, there are in fact times when it is too late.

And this should be the number one reason to use when trying to convince people of creating and staying on a budget.

When someone is 65, with no pot to piss in, nothing in retirement, $40,000+ in CC debt, no career, nothing, it is in fact too late...they have financial cancer and it is nearly always terminal.

I can see you are quite the optimist. And I'm certain you'll just reply and say you are a realist...but what do YOU say to those individuals with "terminal financial cancer?" Would you advise them to just give up? Saying that it can be, in fact, too late to turn things around IS reality sometimes...but that doesn't account for the amazing things we can do as people.

If your solution is to just give up, I think that says much more about you than any individuals financial situation.

[lovcom]

Originally Posted by buildmybudget

I can see you are quite the optimist. And I'm certain you'll just reply and say you are a realist...but what do YOU say to those individuals with "terminal financial cancer?" Would you advise them to just give up? Saying that it can be, in fact, too late to turn things around IS reality sometimes...but that doesn't account for the amazing things we can do as people.

If your solution is to just give up, I think that says much more about you than any individuals financial situation.

I'm not an optimist, nor a pessimist. You are right: I'm a realist.

To those with "financial cancer" I would prescribe palliative treatments, which will slow the cancer down but not cure it. For such folks, they have little money to budget, or if they do budget, the benefits would be negligible because after buying food, rent, utilities, the money is nearly all gone anyways.

And this "financial cancer" is a huge selling point to younger folks that still have time to plan and build wealth through budgeting.

Being young and off-budget is like smoking cigarettes. One out of ten smokers will get lung cancer.

I "scare" my young adult daughters into saving and budgeting by describing "financial cancer" and lets not kid anyone, those that have it have little hope.

[disneysteve]

Along the lines of what lovcom is saying, the last episode of Bank of Mom and Dad (available at hulu.com) showed a girl in debt and her parents took her to a soup kitchen to volunteer and speak with people there. It really opened her eyes to what could happen to her if she didn't clean up her act. She was only 22 so she's got plenty of time to fix the problems. For someone 40 years older, it could well be too late if debt far outweighs any possible income they could earn in their remaining working years. For those folks, the outlook is pretty bleak. I see it every day at work. I work in one of the poorest cities in the country and it isn't pretty.

[KTP]

Originally Posted by buildmybudget

I can see you are quite the optimist. And I'm certain you'll just reply and say you are a realist...but what do YOU say to those individuals with "terminal financial cancer?" Would you advise them to just give up? Saying that it can be, in fact, too late to turn things around IS reality sometimes...but that doesn't account for the amazing things we can do as people.

If your solution is to just give up, I think that says much more about you than any individuals financial situation.

They have little but one choice. File bankruptcy, hopefully move in with a kid if they have one, and try to collect SS while working as a Walmart greeter.

Unfortunately we are on the receiving end of this as we might have a parent in this situation soon. They are very very poor managing money and do not have any real time left to build up a retirement. We already sent them $5000 as a gift to help ends meet but I think they pissed it away pretty fast. Ah well, I keep the spare room clean...Obama can take care of their medical bills.

[snafu]

DH can't budget! His eyes would glaze over if I tried to talk about budgeting. I finally figured out he 'felt' deprived as a kid growing up in a middle class family who lived in a very wealthy district. His buddies were able to buy tickets to expensive sport and entertainment events etc. All it took was a name change to get DH on board. We operate on 'cash flow' which sounds more business-like, professional, and do-able.

For friends and colleagues who endlessly whine about money problems, I've suggested they develop a financial road map. After all... if you don't know where you're going...how do you expect to get to your destination. DSteve put it well...if you spend money on abc...there is no money for xyz.

I hosted a BBQ for some colleagues and because I was bored with their constant moaning about CC bills, I took a sheaf of $5. bills out of my pocket and let the wind blow them out of my hand, off the deck, into the yard. Two of the gals scrambled to retrieve the bills! When they brought them back I thanked them... and explained that paying interest on a CC was like letting the wind blow away your earnings. It's the only time I was ever able to make my point and see that the person 'got it!'