Do budgets work?

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H-Town
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Re: Do budgets work?

Post by H-Town »

d18lover wrote: Sun Apr 11, 2021 10:36 am Budgeting is kind of silly, to me.

If I budget $30 for gas, and goes up in price, will I let myself run out of gas?

Most expenses in life are coming at you regardless of your Excel spreadsheet.
Anyone does that is silly. Budget is not. A Company can’t stop paying expenses and salaries just because they exceed their budget forecast. On the flip side, spending at will is silly.
Time is the ultimate currency.
KlangFool
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Re: Do budgets work?

Post by KlangFool »

delamer wrote: Sun Apr 11, 2021 10:32 am
Having a budget doesn’t imply to me that you necessarily have separate accounts for different expenses. It just means that you have a target for how much you’ll spend for an given item or category.
delamer,

I do not have a target for an given item or category. That is my whole point. My annual expense is around 50K to 60K. When I think I need to buy a new car, I buy a new car. I look at 20K to 25K new car. Then, I look at new car that are more expensive. If it does not represent significant more VALUE to me, I buy my 20K to 25K new car. Then, I spend less on discretionary stuff over months to cover this lumpy expense.

In summary, I save a lot of money but I am not frugal. With 50K to 60K of annual expense and low fixed expense, I have plenty of money for discretionary spending. At my income level, it is all about the house. For those that spend a lot less on the house, they have plenty of money for everything else.

KlangFool
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Wannaretireearly
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Re: Do budgets work?

Post by Wannaretireearly »

We don't budget, but save first thru 401k, espp, etc.
Last few years had high expenses so not really added new $ to taxable. Usually get to backdoor Roth in the summer when bonus kicks in.

Thats it. Rest we pretty much spend.
The biggest budgeting change we just did was sign my wife up for the mega backdoor Roth thru her work. I signed up last year. So, now both of us have 40% plus into forced savings. I predict we'll run out of $ in checking and have to move some $ from savings. I'm ok with that. This will really force us to live on one paycheck and see what our annual spend could be. Looking forward to paying off the mortgage and reduced private school costs next year.
Mentally, seeing a very small paycheck drop into checking does the 'budgeting' for us. Ymmv.
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smitcat
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Re: Do budgets work?

Post by smitcat »

KlangFool wrote: Sun Apr 11, 2021 10:37 am
smitcat wrote: Sun Apr 11, 2021 10:19 am
KlangFool wrote: Sun Apr 11, 2021 9:22 am
LittleMaggieMae wrote: Sat Apr 10, 2021 5:20 pm Wouldn't a Big Expense that you can't cash flow indicate that you might need to "budget" for that expense? Especiaally an expense you KNOW is coming - property taxes, a vacation, school tuition? You'd need alot of disposable income every month to handle a large property tax bill (on your paid off house) or if you have a lot of "Lumpy expenses" one month - a big car repair, insurance(s) due, going on vacation. If you don't "budget" for these items (ie save up the money to spend on the specific thing) you could be in trouble. If you have a "sinking fund" amount - that you account for every paycheck or monthly - that you use to pay for quarterly/semi yearly/yearly expenses - then you probably "budget".
LittleMaggieMae,

1) I save 1 year of expense every year.

2) I keep 1 year to 3 year of expense as my emergency fund.

3) I do not overspend on the house and car. Aka, big items. Hence, I have plenty of slacks in my annual expense.

4) Anything that cannot cover by the slack, I use my emergency fund.

5) Then, I cut my spending for the next few months to refill my emergency fund.

6) I "cash flow" new car purchase, house down payment, and college tuition.

7) I never need a budget. I had done this for 20+ years.

KlangFool
"7) I never need a budget. I had done this for 20+ years."
If one does #'s 1-7 above for 20+ years they have much more than 25X expenses - what happened?
Telecom bust. Gambled on Telecom stock. Lost 50% of my portfolio as a result of that.

KlangFool
"Telecom bust. Gambled on Telecom stock. Lost 50% of my portfolio as a result of that."
Telecom bust was 2001 - if you had 50% lost then the rest would still be at about 7-10X expenses at that time.
7 to 10 X expenses at 2001 plus one time expense every year since and earnings on that would typically be well over 40X now.
Does not add up.
KlangFool
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Re: Do budgets work?

Post by KlangFool »

smitcat wrote: Sun Apr 11, 2021 12:14 pm
"Telecom bust. Gambled on Telecom stock. Lost 50% of my portfolio as a result of that."
Telecom bust was 2001 - if you had 50% lost then the rest would still be at about 7-10X expenses at that time.
7 to 10 X expenses at 2001 plus one time expense every year since and earnings on that would typically be well over 40X now.
Does not add up.
smitcat,

1) I did not have 14X to 20X at 2001. I did not work for 14 to 20 years before 2001.

2) I saved 1 year of current annual expense every year. The annual expense and saving in the earlier years is not the same amount as the later years.

KlangFool
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Vtsax100
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Re: Do budgets work?

Post by Vtsax100 »

Budget: An estimate of income and expenditure for a set period of time.

I think most people with any money sense use one. And yes it is quite a necessity.
LittleMaggieMae
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Re: Do budgets work?

Post by LittleMaggieMae »

KlangFool wrote: Sun Apr 11, 2021 9:22 am
LittleMaggieMae wrote: Sat Apr 10, 2021 5:20 pm Wouldn't a Big Expense that you can't cash flow indicate that you might need to "budget" for that expense? Especiaally an expense you KNOW is coming - property taxes, a vacation, school tuition? You'd need alot of disposable income every month to handle a large property tax bill (on your paid off house) or if you have a lot of "Lumpy expenses" one month - a big car repair, insurance(s) due, going on vacation. If you don't "budget" for these items (ie save up the money to spend on the specific thing) you could be in trouble. If you have a "sinking fund" amount - that you account for every paycheck or monthly - that you use to pay for quarterly/semi yearly/yearly expenses - then you probably "budget".
LittleMaggieMae,

1) I save 1 year of expense every year.

2) I keep 1 year to 3 year of expense as my emergency fund.

3) I do not overspend on the house and car. Aka, big items. Hence, I have plenty of slacks in my annual expense.

4) Anything that cannot cover by the slack, I use my emergency fund.

5) Then, I cut my spending for the next few months to refill my emergency fund.

6) I "cash flow" new car purchase, house down payment, and college tuition.

7) I never need a budget. I had done this for 20+ years.

KlangFool
I agree with you to a point. I think having an actual written down (or excel spreadsheet) budget is helpful when you are first trying to get your mind wrapped around your income in flow and outflow. I think if you keep working with a budget/spending plan for a length of time (a few years or longer) and you aren't servicing consumer debt (or trying to get out of consumer debt) your "budget" gets worked into your savings patterns - as in your 'automatic transfers' and 'pay your self first money' and maybe an "allowance" take the place of your over all 'budget'.

So that said... It sounds like you do have a "budget" that you keep in your head. You know what your yearly expenses are if you are doing #1 on your list. I suppose you get that number by tallying up your monthly/quarterly/semi yearly/yearly outflows of money OR you could just pick a random number that sounded about 'right'. I bet you know how much you spend on your utility bills monthly and/or yearly. I bet you know how much you spend on property taxes and house insurance (if these aren't part of your "mortgage payment") per year. I bet you know a "ball park estimate" on how much you could afford to pay for a new refrigerator or a new roof. That "ball park estimate" might not match the actual cost of the fridge or the roof - but you KNOW when you get estimates for these expenses if it's 'no sweat - let me write a check' or "ouch, that's more expensive than I thought - let me look to see where I can pull that extra money from". If you just willy nilly buy whatever fridge or roof you "think is in your "budget" or is not overspending - and don't actually KNOW if you are overspending for your income level... you've got way more money than I ever hope to have. :)

For #3 - how do you know if you are overspending on a house or car if you don't KNOW how much you can savely spend? Knowing that number means you must have tallied up the expenses for the house or car and compared that number to how much 'disposable' or available money you have.

I think you do have a "budget" - it's just not written down on paper and you aren't actively trying to fit your income/expenses and "wants" and "needs" into it. You also aren't trying to "save up" for something you "want" and are going to spend on in 2 years (or in 5 years).

I get it that you don't have an "official" budget... but really - you've got one. :)
smitcat
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Re: Do budgets work?

Post by smitcat »

KlangFool wrote: Sun Apr 11, 2021 12:22 pm
smitcat wrote: Sun Apr 11, 2021 12:14 pm
"Telecom bust. Gambled on Telecom stock. Lost 50% of my portfolio as a result of that."
Telecom bust was 2001 - if you had 50% lost then the rest would still be at about 7-10X expenses at that time.
7 to 10 X expenses at 2001 plus one time expense every year since and earnings on that would typically be well over 40X now.
Does not add up.
smitcat,

1) I did not have 14X to 20X at 2001. I did not work for 14 to 20 years before 2001.

2) I saved 1 year of current annual expense every year. The annual expense and saving in the earlier years is not the same amount as the later years.

KlangFool
"1) I did not have 14X to 20X at 2001. I did not work for 14 to 20 years before 2001."
From your other psost I was under the impression you worked right out of college untill this past year - about a 35 year timeframe.

"2) I saved 1 year of current annual expense every year. The annual expense and saving in the earlier years is not the same amount as the later years."
This is something we can very much agree on. I believe that part of this comes from the inflation each year.
But also if you have 1X saved and inflation might be 2% your earnings on those savings would also apply. Folks therefore would not lose fround to inflation unless/untill the inflation rate was above their earings rate as an average over time. Kinda exactly like those X% future portfolio earnings charts you are posting lately.
DetroitRick
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Re: Do budgets work?

Post by DetroitRick »

They work for me, for sure. It's not enough to budget- you also need to track and monitor performance. Tons of software tools make this easy. Now more than ever before. And this needs to generate some beneficial action - otherwise it's just bookkeeping. Part of the trick is to strike the right balance (for you) between too much detail and too little. Having some broad categories to track the more trivial stuff can cut your workload radically without removing any benefit.

It's really the same as I experienced with corporate budgeting, the value all depends on the quality of the process, the competence of the participants and the goals that it helps achieve. Budgets can be useless, budgets can be useful, many are somewhere in between. They can be put to use as a management tool, or they can be prepared and ignored.

Our budgeting has helped us with goal achievement and, on occasion with managing scarcity and risk. It's also helped my tax planning to an extremely significant degree. My budgets simply serve as checkpoints. I want to spend my money on purpose. That, for me, does not mean tracking every single cent or agonizing over every purchase (I still tip generously...). It just gives me benchmarks. I helps me avoid unintentional waste.

After years of simple spending management, annual budgets for us are quite simple now to prepare. The more important underlying thought process and goal setting can take more time, but pulling the numbers and reviewing/revising is less than one afternoon a year. My wife is fully involved with this too. Annual budget is in detail, 5-year plan (only started since around the time of my retirement) is higher level.

Budgeting was a wonderful tool in preparing for retirement too. Because I tracked spending for use with our budgeting, I also knew exactly what I was spending. Predicting retirement changes was pretty simple (and accurate) for me, except perhaps medical-related. Now in retirement, that same spending analysis and budgeting helps me to stage withdrawals and manage taxes.

On the other hand, I will say that, of every human I know well, I don't think any of them budget. But I do me.
KlangFool
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Re: Do budgets work?

Post by KlangFool »

LittleMaggieMae wrote: Sun Apr 11, 2021 12:31 pm
I agree with you to a point. I think having an actual written down (or excel spreadsheet) budget is helpful when you are first trying to get your mind wrapped around your income in flow and outflow. I think if you keep working with a budget/spending plan for a length of time (a few years or longer) and you aren't servicing consumer debt (or trying to get out of consumer debt) your "budget" gets worked into your savings patterns - as in your 'automatic transfers' and 'pay your self first money' and maybe an "allowance" take the place of your over all 'budget'.

So that said... It sounds like you do have a "budget" that you keep in your head. You know what your yearly expenses are if you are doing #1 on your list. I suppose you get that number by tallying up your monthly/quarterly/semi yearly/yearly outflows of money OR you could just pick a random number that sounded about 'right'. I bet you know how much you spend on your utility bills monthly and/or yearly. I bet you know how much you spend on property taxes and house insurance (if these aren't part of your "mortgage payment") per year. I bet you know a "ball park estimate" on how much you could afford to pay for a new refrigerator or a new roof. That "ball park estimate" might not match the actual cost of the fridge or the roof - but you KNOW when you get estimates for these expenses if it's 'no sweat - let me write a check' or "ouch, that's more expensive than I thought - let me look to see where I can pull that extra money from". If you just willy nilly buy whatever fridge or roof you "think is in your "budget" or is not overspending - and don't actually KNOW if you are overspending for your income level... you've got way more money than I ever hope to have. :)

For #3 - how do you know if you are overspending on a house or car if you don't KNOW how much you can savely spend? Knowing that number means you must have tallied up the expenses for the house or car and compared that number to how much 'disposable' or available money you have.

I think you do have a "budget" - it's just not written down on paper and you aren't actively trying to fit your income/expenses and "wants" and "needs" into it. You also aren't trying to "save up" for something you "want" and are going to spend on in 2 years (or in 5 years).

I get it that you don't have an "official" budget... but really - you've got one. :)
LittleMaggieMae,

I do not have a budget but I have a very simple and effective mean of expense control. I do "Pay Yourself First" saving method. I auto-deposit my saving and expense from my pay check to my accounts.

I keep 3 months of expense in my checking account and I refill the allocate amount to expense from my pay check to the checking account. I can tell whether I am overspending just by looking at the balance of my checking account. I pay all my bills through that checking account.

KlangFool
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nolesrule
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Re: Do budgets work?

Post by nolesrule »

d18lover wrote: Sun Apr 11, 2021 10:36 am Budgeting is kind of silly, to me.

If I budget $30 for gas, and goes up in price, will I let myself run out of gas?

Most expenses in life are coming at you regardless of your Excel spreadsheet.
No, you would adjust your budget so that spending in other areas keeps you expense neutral.

I see my budget as more of a spending and savings plan for the money I have. As expenses change, I incorporate that new information into my plan and reduce something of lower priority.
coachd50
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Re: Do budgets work?

Post by coachd50 »

nolesrule wrote: Sun Apr 11, 2021 1:02 pm
d18lover wrote: Sun Apr 11, 2021 10:36 am Budgeting is kind of silly, to me.

If I budget $30 for gas, and goes up in price, will I let myself run out of gas?

Most expenses in life are coming at you regardless of your Excel spreadsheet.
No, you would adjust your budget so that spending in other areas keeps you expense neutral.

I see my budget as more of a spending and savings plan for the money I have. As expenses change, I incorporate that new information into my plan and reduce something of lower priority.
I was going to say the same thing. No, you might not let yourself run out of gas, but if you are someone with income levels low enough that strict budgeting (and more importantly limiting necessary expenses and severely limiting more luxury spending) is necessary, a very realistic event might be that you buy a small amount of gas to get you through emergencies, find alternate modes of transportation and rework your budget by cutting spending in another area. Maybe you have to stretch your groceries a bit, skip a meal or two.

Personal finance is personal.
Last edited by coachd50 on Sun Apr 11, 2021 1:54 pm, edited 1 time in total.
pasadena
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Re: Do budgets work?

Post by pasadena »

They do when the person is motivated to, and has the right tools.

For me, someone with a higher income, it's mostly about plugging leaks - I know that I have a lot more money when I follow my budget than when I don't. For others, it will be about making sure they don't spend more than they earn, and/or reach their goals.

Take a look at the r/YNAB subreddit - you will see many, many stories of people who did turn their life around by using a budget.

Obviously, it's just a tool. The person has to do the work.
UpperNwGuy
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Re: Do budgets work?

Post by UpperNwGuy »

mikejuss wrote: Sat Apr 10, 2021 8:10 am This morning, I read a Tweet I found depressing: "In 13 years as a financial advisor, I've never seen anyone actually turn their life around with a budget. They either earn their way out of their spending habits, or they are in debt forever."

Do you agree?
I was deeply in debt for many years until I turned my financial life around with a budget. Nothing to do with Dave Ramsey or his envelopes. It was just a simple, ordinary budget. I've been using a budget ever since, and it has been a simple, easy tool for self-management. I expect to be using a budget for the rest of my life.
NYCaviator
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Re: Do budgets work?

Post by NYCaviator »

backpacker61 wrote: Sat Apr 10, 2021 8:51 am To me, budgets are like diets. Do diets really work?

Or is lifestyle change really more sustainable?
I agree with this 100%.

At the end of the day you should (1) pay your bills, (2) pay down debt, and (3) save enough to meet your savings goals. How you get there is up to you but you need to be honest with yourself about how to do it.

If you have a major spending problem - and don't mind using physical currency - the Ramsey envelope system works. If you like fancy software, YNAB is great. If you like spreadsheets, awesome. For some people, you don't need any special system, you just set aside your savings and money for bills each paycheck, and the rest you can spend.

Some people love YNAB or other systems where you allocate each dollar. I couldn't live with a system like that. Like a trendy diet, I know that I would try it for a week or two and then quit. So long as you meet your goals and pay your bills, do what works best for you.
finite_difference
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Re: Do budgets work?

Post by finite_difference »

KlangFool wrote: Sun Apr 11, 2021 12:55 pm
LittleMaggieMae wrote: Sun Apr 11, 2021 12:31 pm
I agree with you to a point. I think having an actual written down (or excel spreadsheet) budget is helpful when you are first trying to get your mind wrapped around your income in flow and outflow. I think if you keep working with a budget/spending plan for a length of time (a few years or longer) and you aren't servicing consumer debt (or trying to get out of consumer debt) your "budget" gets worked into your savings patterns - as in your 'automatic transfers' and 'pay your self first money' and maybe an "allowance" take the place of your over all 'budget'.

So that said... It sounds like you do have a "budget" that you keep in your head. You know what your yearly expenses are if you are doing #1 on your list. I suppose you get that number by tallying up your monthly/quarterly/semi yearly/yearly outflows of money OR you could just pick a random number that sounded about 'right'. I bet you know how much you spend on your utility bills monthly and/or yearly. I bet you know how much you spend on property taxes and house insurance (if these aren't part of your "mortgage payment") per year. I bet you know a "ball park estimate" on how much you could afford to pay for a new refrigerator or a new roof. That "ball park estimate" might not match the actual cost of the fridge or the roof - but you KNOW when you get estimates for these expenses if it's 'no sweat - let me write a check' or "ouch, that's more expensive than I thought - let me look to see where I can pull that extra money from". If you just willy nilly buy whatever fridge or roof you "think is in your "budget" or is not overspending - and don't actually KNOW if you are overspending for your income level... you've got way more money than I ever hope to have. :)

For #3 - how do you know if you are overspending on a house or car if you don't KNOW how much you can savely spend? Knowing that number means you must have tallied up the expenses for the house or car and compared that number to how much 'disposable' or available money you have.

I think you do have a "budget" - it's just not written down on paper and you aren't actively trying to fit your income/expenses and "wants" and "needs" into it. You also aren't trying to "save up" for something you "want" and are going to spend on in 2 years (or in 5 years).

I get it that you don't have an "official" budget... but really - you've got one. :)
LittleMaggieMae,

I do not have a budget but I have a very simple and effective mean of expense control. I do "Pay Yourself First" saving method. I auto-deposit my saving and expense from my pay check to my accounts.

I keep 3 months of expense in my checking account and I refill the allocate amount to expense from my pay check to the checking account. I can tell whether I am overspending just by looking at the balance of my checking account. I pay all my bills through that checking account.

KlangFool
I follow this Pay Yourself First savings method too, and I think it works well.

I would say it can be useful to do a budget once in a while to get an overall picture of spending and see if there are things you are paying for that you aren’t really getting any benefit from. But that could be done once every few years. Some people like tracking everything but I don’t.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
Independent George
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Re: Do budgets work?

Post by Independent George »

mikejuss wrote: Sat Apr 10, 2021 8:10 am This morning, I read a Tweet I found depressing: "In 13 years as a financial advisor, I've never seen anyone actually turn their life around with a budget. They either earn their way out of their spending habits, or they are in debt forever."

Do you agree?
That seems like and adverse selection bias - the people who live within budgets generally don't need to turn their lives around in the first place, and the people who need to turn their lives around are least capable of staying within budget. This is in line with something Dave Ramsey often says - finances are 10% math and 90% behavior. The debt snowball works even though it's not mathematically optimal because it tackles the behavior first.
KlangFool
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Re: Do budgets work?

Post by KlangFool »

finite_difference wrote: Tue Apr 13, 2021 12:11 pm
KlangFool wrote: Sun Apr 11, 2021 12:55 pm
LittleMaggieMae wrote: Sun Apr 11, 2021 12:31 pm
I agree with you to a point. I think having an actual written down (or excel spreadsheet) budget is helpful when you are first trying to get your mind wrapped around your income in flow and outflow. I think if you keep working with a budget/spending plan for a length of time (a few years or longer) and you aren't servicing consumer debt (or trying to get out of consumer debt) your "budget" gets worked into your savings patterns - as in your 'automatic transfers' and 'pay your self first money' and maybe an "allowance" take the place of your over all 'budget'.

So that said... It sounds like you do have a "budget" that you keep in your head. You know what your yearly expenses are if you are doing #1 on your list. I suppose you get that number by tallying up your monthly/quarterly/semi yearly/yearly outflows of money OR you could just pick a random number that sounded about 'right'. I bet you know how much you spend on your utility bills monthly and/or yearly. I bet you know how much you spend on property taxes and house insurance (if these aren't part of your "mortgage payment") per year. I bet you know a "ball park estimate" on how much you could afford to pay for a new refrigerator or a new roof. That "ball park estimate" might not match the actual cost of the fridge or the roof - but you KNOW when you get estimates for these expenses if it's 'no sweat - let me write a check' or "ouch, that's more expensive than I thought - let me look to see where I can pull that extra money from". If you just willy nilly buy whatever fridge or roof you "think is in your "budget" or is not overspending - and don't actually KNOW if you are overspending for your income level... you've got way more money than I ever hope to have. :)

For #3 - how do you know if you are overspending on a house or car if you don't KNOW how much you can savely spend? Knowing that number means you must have tallied up the expenses for the house or car and compared that number to how much 'disposable' or available money you have.

I think you do have a "budget" - it's just not written down on paper and you aren't actively trying to fit your income/expenses and "wants" and "needs" into it. You also aren't trying to "save up" for something you "want" and are going to spend on in 2 years (or in 5 years).

I get it that you don't have an "official" budget... but really - you've got one. :)
LittleMaggieMae,

I do not have a budget but I have a very simple and effective mean of expense control. I do "Pay Yourself First" saving method. I auto-deposit my saving and expense from my pay check to my accounts.

I keep 3 months of expense in my checking account and I refill the allocate amount to expense from my pay check to the checking account. I can tell whether I am overspending just by looking at the balance of my checking account. I pay all my bills through that checking account.

KlangFool
I follow this Pay Yourself First savings method too, and I think it works well.

I would say it can be useful to do a budget once in a while to get an overall picture of spending and see if there are things you are paying for that you aren’t really getting any benefit from. But that could be done once every few years. Some people like tracking everything but I don’t.
finite_difference,

All my expenses are paid either through credit cards or checking account. They are downloaded and updated via Quicken. So, it is tracked in full details and automatically. But, I do not use it as a budgeting tool.

KlangFool
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Quirkz
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Re: Do budgets work?

Post by Quirkz »

mikejuss wrote: Sat Apr 10, 2021 10:33 am
Swivelguy wrote: Sat Apr 10, 2021 9:13 am I suspect that many of the people posting "yeah, I use a budget, it works great!" are high earners who've never really had to face a harsh reality of necessary expenses exceeding achievable income. That's not really relevant to the claim by the advisor in the OP.

Anyway, here's a counter-anecdote to that claim: while it may not be enough to just coldly slap a budget on the kitchen table, the process of budgeting, when supported with coaching and accountability, can certainly be effective. For some great stories of coaching working to help people control their expenses, I like this episode of ChooseFI.
This seems like an important distinction--i.e., budgeting among those who are high earners and budgeting among those who aren't. I wonder if the financial adviser is dealing mainly with the latter category of client.
I'd argue the less you make, the more you need the budget. If you make enough, you might be able to earn more than your impulses and emergencies, but if you don't make a lot, you need to proceed cautiously and thoughtfully.

I had one year where I got by pretty well on an income of $12k. You'd better believe I needed a money plan to make that work. Years prior to that, making $30k, I'd dug myself a hole because I didn't have a plan.

Now obviously the source quote is correct that sometimes the largest part of someone's money problems is income. And they can do a lot of good by increasing their income. But plenty of people either make enough that's not the source of their problems or are in situations where they really can't do much about their income, and a budget is the only way to address that side of the issue.
Ramjet
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Joined: Thu Feb 06, 2020 10:45 am

Re: Do budgets work?

Post by Ramjet »

mikejuss wrote: Sat Apr 10, 2021 8:10 am This morning, I read a Tweet I found depressing: "In 13 years as a financial advisor, I've never seen anyone actually turn their life around with a budget. They either earn their way out of their spending habits, or they are in debt forever."

Do you agree?
I'm sure there are some Dave Ramsay success stories out there
SQRT
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Joined: Sat Feb 05, 2011 8:44 am

Re: Do budgets work?

Post by SQRT »

JoMoney wrote: Sat Apr 10, 2021 8:33 am Yes, it works. You can't manage what you don't measure. Just writing down what you eat (and the calories) can help you "budget" a diet and lose weight. It works the same with your money expenditures. The act of paying attention to it gives you more ability to make higher minded choices to direct you to your goal.
I agree with your sentiment. If you don’t record your expenditures you can’t manage them. I’m 70 years old, retired about 15 years, no debt, plenty of cash flow to spend. But I still have a “budget” because I really want to know where I’m spending.

Having said that. I really don’t use it as a control on my spending. If something comes up, I will just proceed. But at least I know that I have made a conscious decision to do so and can go back and see where it’s gone.
deltaneutral83
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Re: Do budgets work?

Post by deltaneutral83 »

Budgeting (or in most BH cases, tracking) in some capacity is probably good while starting out, I use PC then export to my own spreadsheet to customize even further (couple cash type transactions to enter as well). I have other spreadsheets for taxes, NW, large household purchases (cars/HVAC/Hot water heater/ etc.). Helps me to know with each passing year how old the HVAC is and how close I am to that expense. I drive Honda/Toyota types now so I don't have the rollercoaster ride with some other luxury cars with 90k+ miles and the $2,000 repair every time the check engine light comes on.

When you get all your information in one place and put it all together it gives you a good idea of the day to day as well as the long game. I probably spend 15-20 minutes a month entering in things in Excel.
IMO
Posts: 1569
Joined: Fri May 05, 2017 6:01 pm

Re: Do budgets work?

Post by IMO »

SQRT wrote: Tue Apr 13, 2021 1:50 pm
JoMoney wrote: Sat Apr 10, 2021 8:33 am Yes, it works. You can't manage what you don't measure. Just writing down what you eat (and the calories) can help you "budget" a diet and lose weight. It works the same with your money expenditures. The act of paying attention to it gives you more ability to make higher minded choices to direct you to your goal.
I agree with your sentiment. If you don’t record your expenditures you can’t manage them. I’m 70 years old, retired about 15 years, no debt, plenty of cash flow to spend. But I still have a “budget” because I really want to know where I’m spending.

Having said that. I really don’t use it as a control on my spending. If something comes up, I will just proceed. But at least I know that I have made a conscious decision to do so and can go back and see where it’s gone.
The lazy way to get by in life is to set a savings amount 1st and save that. From there one just spends whatever one wants with the money left over. This works fine when one makes enough money that one has enough discretionary money to cover how one typically lives. I do find this sort of an elitist thing in life because it implies one doesn't need to really worry about expenses when in the real world, most people do need to worry about what their expenses are in life. Even if one can afford it without thinking, it's nice to know where it all goes.

It's nice to know where even the discretionary money goes because you can adjust it to another category. Maybe one want to cut back on car expenses and shift the money to vacation expenses that might be lacking, etc.

When people ask, "can I retire?" it always seems odd to me if people don't know with reasonable detail what their expenses are in actual categories currently and how much they can predict those categories will change in the future during various stages of retirement. When people post their expenses in the can I retire question, the 1st thing I think is "list out your actual expenses (categories) and not just the total amount" which gives little information.
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