Busting Budget Myths
By: Brandon Schleter, January 29, 2016
A long-time friend of mine recently called me up as he’d heard that I’d become a financial planner, and he was looking for some advice. He was looking into buying his first house, but was concerned about making sure he had enough money to cover his bills – and still have a life. I sat down with him and went over his current financial situation, and to his surprise, I didn’t tell him that he needed to quit having fun and stop spending his hard-earned money. He purchased a house he could afford, and within a year had budgeted and saved up enough money to take a vacation, and he had enough left over each month to have a little fun.
The point here is that when most people hear the word “budget,” they only think about what they have to stop spending money on. The reality is the opposite. Creating a budget allowed my friend to buy a home, take a trip, and enjoy life – without stressing about how to pay for it all.
When creating budgets with clients – especially those who’ve never created a budget before – the first thing we generally do is take the “pay yourself first” approach and look into automating savings and bill payments. The trick to a successful first-time budget is figuring out how much to automate into savings, and how much to allocate for living life. Once the necessities and savings are on autopilot, clients have permission to spend what’s left over on life. We help them define what that lifestyle looks like.
We see recent graduates who generally fall into two camps – those who try to save too much and end up sacrificing daily enjoyment, and those who are reluctant to save a healthy amount because they’re afraid of living a boring and rigid life. With both types of client, it’s about finding that middle ground. The right balance between saving and playing is different for each person, but it’s crucial in creating financial plans clients will actually stick to. We wouldn’t be doing our job if we let clients save too little, but if they’re not having any fun, it’s unlikely they’ll stick to a financial plan beyond a couple of months.
The misconception that budgets are only for those with smaller amounts of money is another common misconception we see in our office. The truth is, everyone needs a budget. This is why lottery winners so often go broke. They don’t plan out their budget. Our $10,000-a-month clients need our help allocating their money between securing a future and enjoying today, just as our clients with smaller incomes do.
So as 2016 continues, think of your budget as an ongoing commitment to bettering yourself. Like going to the gym or eating better, budgeting is not a one-time thing. It’s an ongoing means of enjoying life, and sleeping stress-free at night.