Budget. The mere mention of the word makes people cringe, gnash their teeth, bang their head against the wall, or slump in their chair. When I ask workshop participants who comes to mind when they think of a budget, I get responses like The Grinch, Scrooge, and Dwight from “The Office.” One person even said, “the devil.”
So universally disdained is this pitiful personal finance tool that many financial writers play an odd dance of trying to distance themselves from budgets while at the same time teaching people how to use one.
In his book, “The Automatic Millionaire,” David Bach tells readers to “take those budgets you’ve been struggling with and throw them in the garbage. If you really want to budget your expenses, that’s your business, but I think it’s a waste of time and effort.” And yet, in his “Finish Rich Workbook” he teaches readers to estimate and then track what they spend. He also acknowledges using Quicken to track his own household’s spending.
In the classic money management book, “Your Money or Your Life,” Joe Dominguez and Vicki Robin write, “Don’t worry. This program is not about budgeting!” They then proceed to teach readers how to track their spending “down to the penny.” How is this different from budgeting? They explain that their approach is “based on consciousness, fulfillment and choice, not on budgeting or deprivation.” Ah, I’m glad we cleared that up!
Few Takers
I’ve long been a believer in the much-maligned budget. In fact, I think it’s the single most powerful tool for successful money management. I’ve tried to tell people it might be ugly, but this mutt will scare away debt and help guide you down a trail of building savings and spending smart.
Mostly, these words have fallen on deaf ears. Even telling people that one of the finest personal finance books ever written, The Millionaire Next Door, revealed that over half of all millionaire households use a budget to guide their finances, didn’t generate much interest. It’s too much work, people said. It seems like a hassle.
Finally, a Little Love
But at last something has awoken people’s inner budgeter. It’s the same something that has suddenly turned so many people into savers. The Great Recession.
National surveys I commissioned from the market research firm Synovate – one in 2006 and one just recently – shows a dramatic increase in the number of people claiming to use a budget.
In 2006, 47 percent of people said they used a detailed or general plan for their household’s income and expenses. This year, that figure jumped to 80 percent.
When asked specifically how the recession has impacted their use of a budget, 38 percent of previous non-budgeters said the recession has prompted them to begin using one, and 53 percent of people who were using a budget before the recession said the economic downturn has prompted them to begin tracking their finances more closely.
One of the most surprising findings from this new research is how few budgeters use online budget tools like Mint.com, which have been generating lots of buzz. Of all people who said they use a budget, just 3 percent said they use an online budget tool. The most popular budget gear? Paper and pencil.
Obedience School Coming Soon
Now that more people are showing some interest in using a budget, I plan to write more about how to set up and use one in the weeks ahead. With the New Year just around the corner, right now is the perfect time to get this dog housebroken.
If you want to get in on that and you haven’t yet signed up for a free subscription to this blog, please do so here.
What about you? How has the recession impacted your use of a budget? If you’re a recent budget convert, how’s it going so far? What’s been the most difficult part? What has turned out to be easier than you thought? Or, if you’re still resisting the use of a budget, what’s holding you back? If you’ve been a long-time budget user, what would you say to a non-budgeter to motivate them to give it a try?
I’ve been thinking about what I said above and decided that I needed to provide an additional piece of my puzzle for clarification.
During the time that I went from debt to nice net worth, I also gave generously to church and other not for profit organizations. When you put others first, you usually end up “profiting” also. God loves a cheerful giver – 2 Corinthians 9:7 🙂
I began keeping track of my net worth on paper annually in 1996. I liked the progress I saw, so in 2005 I started doing this each month, keeping spreadsheets on my computer. This was my way of tracking my success/failure without using an actual budget. I still don’t use a budget per se, but more of a spending and savings “plan” (a variation of the “buckets” theory) and I like it this way.
I’ve read “The Millionaire Next Door” at least 6 times since I first got it years ago. I find it a very useful guide, and find it helps me keep focus on my goals of achieving financial security, and ultimately, financial independence. Although I’m not a PAW, I’m getting closer. I don’t agree entirely with their expected net worth formula though, because only in the last few years have my earnings increased significantly. The first 15 years of my adult working life were as an enlisted person in the USAF and other low-paying jobs, and my current income skews the results of their formula.
As far as your surprise about people not using websites like Mint.com, I don’t do this either. I do not like the idea of putting my personal information online, no matter how secure the site is reputed to be.
If I didn’t use a budget, reading all these comments would at least make me want to give it a try. Thanks for all the comments!
Caroline, very cool to hear that even your 7 year old has caught on!
In January 2002 I began tracking every penny I spent and continue to this day (it’s actually quite empowering). By more closely watching and planning my resources, I was able to go from holding modest college loan and credit card debt to having a somewhat sizeable net worth in under 10 years, and am on track to being the “Millionaire Next Door” in another 10. Seems like an excellent reason to track and budget to me – and I am not missing out on life either!
I’m glad you’re going to be zeroing in on budgeting in the next few weeks. I’ve been on a budgt more or less all my life and can’t imagine life without one — I would be so lost. My kids (ages 20, 9, and 7) have caught on and are rather adept budgeters too! I’m always interested in new tips and ideas so I’m looking forward to what you’ll be bringing us!
I looked up the definition of the word “budget” and of the results given, I liked this one best: “A budget (from old French bougette, purse) is generally a list of all planned expenses and revenues. It is a plan for saving and spending.”
I think most people are not too keen on giving up ‘control’ of their finances, as they may see that happening in a budget; a piece of paper that dictates how and when. However, if they can understand that it’s their choice in choosing how they “save and spend”, it should be motivational for them. It work’s for me!
Thanks, Jessica. More to come on the different budget tools, how to get started, and answers to some of the most frustrating budget-related questions.
Great post. I’ll be watching to see what you come up with regarding how to set up a budget. 🙂
Great points, Andrew. It’s similar to the experience I’ve had with running. I used to hate even the idea of going for a run. But now that Jude and I accomplished our goal of running the Chicago half-marathon, along with all the training it required, I’ve not only gotten used to running — I’ve come to truly enjoy it. I hope that by writing about budgeting more often, non-budgeters will be encouraged to give it a try. I’m confident that if they just stick with it for a while, they’ll get to the point where they’ll wonder how they ever got along without a budget. And if they really peak, they’ll eat broccoli while reviewing their budget!
People are sick of hearing about budgets, and it has become popular to make promises about no-budget solutions, but your post is right on.
Another favorite trick of some “experts” is to refer to it as a spending plan, not a budget. I have always thought this is the equivalent of getting people to eat healthier by calling broccoli “french fries” and salad “pizza”. Instead of trying to trick people into doing what is good for them, lets focus on the benefits. For me, my budget isn’t something that holds me back, it is something that helps me get where I want to go.
Thanks for using the word “budget” — everyone else seems afraid to…