Do budgets work?

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mikejuss
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Do budgets work?

Post by mikejuss »

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?
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Gill
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Re: Do budgets work?

Post by Gill »

No, I don’t see how you can’t”earn your way” out of your spending habits. More earnings it seems will only lead to more spending.
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TRC
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Re: Do budgets work?

Post by TRC »

Yes, they do work. 100%. I've been using You Need A Budget (YNAB) for 10+ years. I just finished my weekly reconciliation this morning actually.
runninginvestor
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Re: Do budgets work?

Post by runninginvestor »

Doesn't seem like they are promoting their professional services very well...

I've helped a few friends develop a budget that they've stuck to and paid off debts doing so, while saving at the same time. Although I wasn't charging them for this, which probably helped a little in their budgeting.
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mikejuss
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Re: Do budgets work?

Post by mikejuss »

Gill wrote: Sat Apr 10, 2021 8:13 am No, I don’t see how you can’t”earn your way” out of your spending habits. More earnings it seems will only lead to more spending.
Gill
That's a fair point. I think the Tweeter was suggesting that some people actually do use increased earnings to pay down debt and save more, rather than spending more as they make more.
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dbr
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Re: Do budgets work?

Post by dbr »

Budgets can work, but I suspect the likelihood of being successful is greatest when one is young and can learn and least when hardened by years of wrong practice. Within family and close friends I have seen both. I have also seen people save themselves from bad habits, such as cocaine and gambling. Both of the latter needed reduction to zero (and fear of death) before message received.

I agree earning your way out can fail, sometimes spectacularly.

The other side of the coin is that lack of income is not a trivial obstacle and it is an obstacle that really can be overcome by more income. It really depends on what kind of situation we mean here. A financial advisor is not looking at people in poverty. A highly successful solution to poverty is more income.

I have also seen the opposite, meaning people who budget themselves down to spending nothing while having fabulous incomes and wealth.
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StevieG72
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Re: Do budgets work?

Post by StevieG72 »

Of course they work, try to earn more and spend less. Works great for personnel finance and business!
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Re: Do budgets work?

Post by mikejuss »

TRC wrote: Sat Apr 10, 2021 8:17 am Yes, they do work. 100%. I've been using You Need A Budget (YNAB) for 10+ years. I just finished my weekly reconciliation this morning actually.
Just for the record, I personally believe budgets are very helpful, and I stick to one myself. Then again, I have no debt, and I think the Tweeter is talking about people mired in debt and trying to get their heads above water. I was surprised to read this observation.
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Re: Do budgets work?

Post by Ryzen »

The vast majority of those people probably had a budget plan and then never stuck to it. That's why I like YNAB - you literally can only spend what you have (well obviously you can do what you want, but spending more than you have makes the app pretty upset at you). I wouldn't say I was mired in debt, but YNAB has helped prioritize where money is going which has made it easier to pay off debt and accelerate net worth growth.
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JoMoney
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Re: Do budgets work?

Post by JoMoney »

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. Some people are bad at actually implementing it and doing it, and some people don't really have a goal to get out of debt/save money (or they've made it a lower priority then spending as they feel.) If you use a budget, you won't always stick to the plan/budget, but you will know when you aren't, and you will notice the leaks and areas for improvement, and use that to improve.
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Re: Do budgets work?

Post by coachd50 »

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 would say that in their 13 years this advisor hasn't been terribly observant. Not suggesting that budgets are a surefire cureall, or that they even work the majority of the time. Personal finance is largely behavioral, and I would suggest that individuals who are not able to discipline themselves to live within a budget would not exhibit more successful financial behavior if their earning power increased.

Either that, OR the advisor is surrounded by a large percentage of extremely low income individuals- for which I would say the statement is more accurate.
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Re: Do budgets work?

Post by IowaFarmWife »

Yes, budgets do work if you are willing to set up a realistic budget and follow it. I think of budgeting like dieting - it has to have a realistic and achievable goal and you have to be mindful of it every day. You also have to have a way to progress monitor your goals and the willingness and ability to tweak and adjust as circumstances change. I have been budgeting for many years now, and it has helped me tremendously.
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sciliz
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Re: Do budgets work?

Post by sciliz »

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 mean, the only way you can afford a FA is to out earn your spending habits; you have to have enough to invest AND enough to waste on inefficient investments ;-)

Budgets "work" about as well as diets work. Which is to say, not at all over the long term if used as a single intervention. Knowing you're not "supposed" to indulge doesn't address the emotion of why you want to. Tracking your spending, and tracking your calories, can be useful for some folks who aren't detail oriented and don't realize where they are at. But just putting down on paper a goal to limit something to X amount doesn't actually make you limit something to X amount, in most cases.

For most people, a budget can be a helpful tool IF they have access to:
*An income that covers needs and some wants
*Enough emotional intelligence /self reflection time to process why emotional purchases are made
*Automated savings mechanisms (ESPECIALLY the almost magical 401k with a match, where you never see the money)
*A stable enough life experience that the "unexpected expenses" category is going to be relatively stable. I know young folks who move every year for work or because landlords don't renew leases whose "unexpected expenses" are just not predictable enough to make the budget useful.

Without those things, the budget itself doesn't do you much good and my just get you locked in a guilt/shame spiral like some people have with dieting.
BalancedJCB19
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Re: Do budgets work?

Post by BalancedJCB19 »

I wholeheartedly agree and many years ago after reading the Automatic Millionaire, I knew I was doing it right. If I am maxing out my 401K, and have other items taken out of my check automatically for what I want to save for, there is no need for me to budget. I have been doing this for my entire working life even before reading that book and it never failed me and over time I have become an Automatic Millionaire with a paid off home.

When my check comes, it's mine to spend on my living expenses and whatever else I feel the need to spend on. Budgeting is like a diet where you count every calorie, it would never work for me.
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Re: Do budgets work?

Post by Gus Chiggins »

StevieG72 wrote: Sat Apr 10, 2021 8:21 am Of course they work, try to earn more and spend less. Works great for personnel finance and business!
This is my thought as well. If budgets were useless, why would every major corporation dedicate so much time and money to their annual budget process?

I suppose that, in and of itself, a budget isn’t some magic bullet if you’re not going to follow it. But, to me, that’s a failure of execution not concept. And don’t get me wrong, there are many external and internal factors that can make the execution very difficult.

When starting out on our personal finance journey, our yearly budgeting was critical to making sound and reasonable financial decisions. I’m certain that we would have made suboptimal decisions without it. We’re fortunate now that our income has significantly outpaced our expenses, but our budgeting is still essential in planning how to efficiently save money, spend money, give money and, maybe most usefully, reduce taxes.
Last edited by Gus Chiggins on Sat Apr 10, 2021 9:07 am, edited 1 time in total.
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Re: Do budgets work?

Post by anon_investor »

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?
Nope! This financial advisor probably has only visibility to a small subset of the population, and definitely no BHs! :twisted:
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Re: Do budgets work?

Post by backpacker61 »

To me, budgets are like diets. Do diets really work?

Or is lifestyle change really more sustainable?
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gr7070
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Re: Do budgets work?

Post by gr7070 »

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 think both this person is correct and budgets do work.

It's incredibly difficult for spenders to change who they are. Insanely difficult, and thus insanely rare that it happens.

The alcoholic analogy isn't far off, and thus the low "recovery" rates are similar. And that's not even suggesting most spenders have an addiction to spending it's just that spending is in their DNA (so to speak).

Budgets will work. Do work. It's a mathematic certainty. However, they're just incredibly difficult for one spender to follow.

I think us frugal, Bogleheads know this, but I don't think we actually truly understand this fact.

I've never used a budget my entire life.

Well, sort of. My wife and I each have a personal budget, allowance for spending on us individually. It's the one thing that actually gets me to spend money. It's been awesome for me.

I can't recommend it enough to us frugal Bogleheads. I have a handful of bikes, handful of guitars and other moderately expensive things I would have never bought without it.
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racy
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Re: Do budgets work?

Post by racy »

I don't know: never tried one. I just committed to investing 20%, via automatic deduction, beginning with my first paycheck and kept it up for 35 years. And, paid off the credit card balance every month. Then, we spent the rest.
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Re: Do budgets work?

Post by Gus Chiggins »

BalancedJCB19 wrote: Sat Apr 10, 2021 8:44 am I wholeheartedly agree and many years ago after reading the Automatic Millionaire, I knew I was doing it right. If I am maxing out my 401K, and have other items taken out of my check automatically for what I want to save for, there is no need for me to budget. I have been doing this for my entire working life even before reading that book and it never failed me and over time I have become an Automatic Millionaire with a paid off home.

When my check comes, it's mine to spend on my living expenses and whatever else I feel the need to spend on. Budgeting is like a diet where you count every calorie, it would never work for me.
First off all, congratulations on your success!

I’d just like to point out that, to me, this is essentially a budget. A very crude, essentially three item budget; taxes, saving and spending. And by only spending what’s left (i.e. not going into CC debt), you are effectively following your budget.

It sounds like you earned more than enough to not require a high level of optimization and therefore didn’t feel the extra effort was worth benefit. And based on your results, it looks like you were right! With that said, it’s not as though you were unconstrained in your approach, which is exactly the point of a budget.

To play on your analogy, it would be like someone saying I’m not going to count every calorie but I’m going to eat three small healthy meals and exercise for one hour a day. You may not be counting every calorie, but you are essentially implementing the underlying concept, a diet. As with much of life, the key is finding out works best for you.
Last edited by Gus Chiggins on Sat Apr 10, 2021 9:10 am, edited 1 time in total.
Ivygirl
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Re: Do budgets work?

Post by Ivygirl »

I think budgets get sabotaged by something totally primal: the fear of being left behind, of being considered "less."

There is a funny TV commercial which is 'way too true, showing humans trudging across the ice in a line, with one human behind and struggling to keep up - and a ways behind him, a polar bear.

Until I was middle-aged I had good budget intentions but could never get ahead because I was avoiding judgment from family members (who had much more) and my peer group at work. A cheap haircut, shoes that are obviously old, no cool purse to show off, and refusing lunch out with the girls - these things brand you. You have to get over minding being branded. You have to agree to be left behind.

I did succeed in completely turning around my finances, beginning in my mid-40s. The budget told me to wear old clothes and eat at home and stop giving gifts. So I did. It stunk.
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Re: Do budgets work?

Post by Swivelguy »

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.
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Re: Do budgets work?

Post by JoMoney »

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?
To have "lifestyle change" you have to first take notice of the thing(s) that require changing. Eventually better choices (hopefully) become the lifestyle habit. Similar to people that consume more calories than they burn, people that spend more than they earn usually have no idea where there money is going. Until you can name the habits that are negatively impacting your progress, it's not likely you're going to randomly replace them with better habits.
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Re: Do budgets work?

Post by IowaFarmWife »

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.
I have never been a high earner, and that is exactly why I have and need a budget - I simply can't afford to overindulge in my spending. A budget has been and most likely will continue to be essential to my ability to reach both long and short term goals.
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Re: Do budgets work?

Post by H-Town »

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?
It depends. Generally it works as things get measured, they will get managed. However, if you restrict yourself severely under an unreasonable budget, it won’t work in the long term. Similar to a bad relationship with food and restrictive diet. The rebound would be harsh.

Just track your spending and use it as data to make financial decision. Make good decision on house and car purchase, and you don’t have to second guess your groceries bill and traveling.
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Re: Do budgets work?

Post by Golf maniac »

We have used a very detailed budget for almost 30 years. What the budget does is show you options on where you can spend your money. The best examples of how budgets worked for us was with homes, cars, and vacations. We qualified for homes over two times the value of what we bought, but our budget said here is the PITI you can afford. Same with cars, we saved up to buy a car and it showed us exactly how much we could spend. Finally, we had a vacation account, and what was in that account is what we spent. For any raise we received we put 50% in retirement so we only saw 50% in our budget. By having and sticking to a budget I was able to retire at 56 and have a good lifestyle in retirement.

Of course if your income is low it is hard to even budget necessities. But I would claim even for low income earners having a budget and tracking spending monthly will show you if there are any areas where you could reduce expenses. I know some people on here can really live cheaply because they made it a habit for many years.
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Re: Do budgets work?

Post by Jags4186 »

I view my budget as a way of allocating limited resources. While I’m not naturally a spender, it can be awfully easy to spend if you are flush with cash. I see people my age with incomes I can only assume are relatively similar to mine lease/own luxury vehicles, ATVs, dirt bikes, season tickets, always have the latest electronics, always have expensive brand cloths. And that’s all fine in moderation OR if you have so much money that it fits within the paradigm. After all, someone who makes 5x what I make can save multiples of what I save and spend more on wants than I can.

I always start a budget this way:
X = income
Y = goal savings
Z = X-Y = how much I have to spend

Once I have Z, I find I don’t have enough money left to spend on dozens of toys. I suspect most folks work the other way:
X = Income
Y = Spending
Z = X - Y = savings

I find I get the same amount of excitement as making a $10,000 purchase of a mutual fund or ETF in my account as someone else might get spending $10,000 on an ATV. The joy of saving needs to be learned young, IMO.
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Re: Do budgets work?

Post by CPonzi »

Sounds like the Financial Advisor should rethink their career track. One of the replies compared budgeting to dieting... would you go to a personal trainer or dietician who says they've never been able to help someone. Personally I'm a Mint user and budgeting takes 10 minutes or so per month. Most expenses are fixed/recurring, same with my investment amounts and those carry forward automatically. You might have to make slight tweaks to them during the year, e.g. electric bill is higher in the summer months for AC. You then identify any other unique expenditures for the month and voila, whatever you have left is discretionary and you can allot how you see fit (save/spend/give/whatever per your goals and desires).

One of the biggest benefits I see with budgeting is you don't have this feeling after payday that you have a large sum of discretionary money. You've already earmarked those dollars and if you want to spend more on dining out, shopping, or entertainment then you have to adjust. It's also great to look at categories and see how much money was spent for a specified time period. Want to know how much you spent on TV subscriptions in 2020, 5 seconds later and you have a nice little pie chart. James Harrington once said, “Measurement is the first step that leads to control and eventually to improvement. If you can't measure something, you can't understand it. If you can't understand it, you can't control it".

Is a budget 100% necessary, absolutely not, but I find it very helpful in reaching financial goals.
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Re: Do budgets work?

Post by sailaway »

Budgets work the same way that diets work: the plan works if you follow it. The difference is, it seems more people have long term success with budgets than diets.
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Re: Do budgets work?

Post by csmath »

Yes budgets work. They don't actually DO it for you, but for many, simply making a budget and tracking expenses can be eye opening. This might not apply to most Bogleheads, but I'd imagine many people really have no idea where all their money goes. They think they do, but if they wrote everything down they would be surprised.

For the average person it is also magnitudes more difficult to just earn your way out of bad spending habits than to just earn more money. We have much more control over how and were money leaves our accounts than how it goes in. I don't remember where I heard it, but "you can't out earn stupid". (Dave Ramsey?) This is where all the stories of lottery winners and professional athletes come in.

There are also two different approaches that people think of when they hear "budget". Some people think of a budget in terms of what it "will be" while others think of it as what it "was". One allocates money beforehand setting goals while the other reflects on spending afterwards and makes adjustments based on what they see. I think the former is the traditional definition of budget but also believe they can both be effective. If you have a spouse, one approach may be more effective because it may come across as "this is all you are allowed to have" while the other can be communicated as "look at this, is there somewhere we can improve". Of course this all depends on how interested both parties approach finances.
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Re: Do budgets work?

Post by weirdsong1 »

I've always considered 'making a budget' more about the active realization of what one spends their money on. Not all debt is the result of poor spending habits. Assuming we're talking about people who make enough money to live on, debt is result of not knowing/caring if money out is greater than money in. The making of a budget highlights this inflow/outflow problem but is only effective if you actually follow through. In that way it's more of a psychological study, when faced with a tangible set of facts, surely some will act accordingly (and logically reduce their spending), and others will ignore and rationalize.
Point
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Re: Do budgets work?

Post by Point »

The federal government is a classic example of earning your way out of debt failure. Zero based budgets non the other hand can work. Everything is one the table. Get real about needs vs wants. Bear down and eliminate debt.
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Re: Do budgets work?

Post by Ivygirl »

Yesterday I busted my diet, which was enjoying success, because a new person started at work and I was invited to a welcome lunch at a nice restaurant with food I really like. I even had lettuce wrap instead of bread and refused the fries entirely. They brought Thousand Island dressing to go on the Reuben. Diet fail.

There was nothing at that restaurant I could have ordered without busting my diet, except maybe a side of steamed vegetable of the day. Wow, that wouldn't look weird at all, with everyone chowing down.

The whole world is set up so bizarrely it's like it's intended to make us fail. The natural desire to enjoy a meal with a potential new friend and coworker turned into a minefield that went up with a bang. The only thing I could have done was not go. Bummer. Or make everyone uncomfortable by sipping on a Diet Pepsi while they eat.

Overeating that once is making today's sensible food decisions hard.

Parallels with managing money are evident.
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Re: Do budgets work?

Post by delamer »

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.
Being a high earner doesn’t in any way exempt you from having your achievable income fall short of your necessary expenses.

You may be less likely to end up homeless or without enough to eat, but you can lose your house, cars, and end up in bankruptcy and in major tax debt.

I’m interested to check out your link. It seems to me that just undering where your money is going would be a big first step for many people.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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mikejuss
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Re: Do budgets work?

Post by mikejuss »

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.
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H-Town
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Re: Do budgets work?

Post by H-Town »

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.
Or maybe that financial advisor doesn't know what he's talking about, and he just wants attention by tweeting something controversial to get his.
Time is the ultimate currency.
Tdubs
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Re: Do budgets work?

Post by Tdubs »

This advisor is just foolish. Budgets have worked for generations. When my parent's generation took their cash income and stuck it in envelopes or jars marked "rent," "electricity," "food" they were following a method that has stood the test of time. Today, our "jars" are budget categories constructed on YNAB, Mint, or a spreadsheet. Just because it is hard doesn't mean it doesn't work for those who stick to it.

I never needed a budget more than when things got desperate due to job loss. Would not have gotten through those years debt free without one.
Marseille07
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Re: Do budgets work?

Post by Marseille07 »

I don't budget but there are two layers to keep things in check:
1) Monthly, I make sure I have X dollars in checking or austerity measures kick in
2) Overall, I have categories of money tied to the NW; I just keep jotting major items down such as travel for personal allowance. This is also how I keep track of "funny money," as it is one of the buckets as well.
OnTrack2020
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Re: Do budgets work?

Post by OnTrack2020 »

IowaFarmWife wrote: Sat Apr 10, 2021 8:39 am Yes, budgets do work if you are willing to set up a realistic budget and follow it. I think of budgeting like dieting - it has to have a realistic and achievable goal and you have to be mindful of it every day. You also have to have a way to progress monitor your goals and the willingness and ability to tweak and adjust as circumstances change. I have been budgeting for many years now, and it has helped me tremendously.
This. Last year was the first year I did a very detailed line-by-line budget. There were some areas of the budget that we overspent, not because we didn't follow it, but because I didn't have a good grasp of how much we actually spent in a particular area. I had a great idea of how much we spent in the past on a yearly basis, but the detailed items, I could have done better. And, medical-wise, even though we tried our best to budget for out-of-pocket expenses, there were some things we just couldn't have planned for.
CPonzi
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Re: Do budgets work?

Post by CPonzi »

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.
Don't financial advisors predominantly cater toward high earners. Not knowing the particular financial advisor, I'm assuming most of his or her clientele are in or near the "high earner" category. With hourly financial advisors making $100 to 300 per hour, I wouldn't expect they attract many low income clients.
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MrBobcat
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Re: Do budgets work?

Post by MrBobcat »

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 do agree. This advisor is most likely working with people with behavioral issues. A budget isn't going to fix those.
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MrBobcat
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Re: Do budgets work?

Post by MrBobcat »

Jags4186 wrote: Sat Apr 10, 2021 9:32 am
I always start a budget this way:
X = income
Y = goal savings
Z = X-Y = how much I have to spend
That's where I end my "budget".
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mikejuss
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Re: Do budgets work?

Post by mikejuss »

CPonzi wrote: Sat Apr 10, 2021 11:20 amDon't financial advisors predominantly cater toward high earners. Not knowing the particular financial advisor, I'm assuming most of his or her clientele are in or near the "high earner" category. With hourly financial advisors making $100 to 300 per hour, I wouldn't expect they attract many low income clients.
This raises a related question: are people who earn decent incomes but spend almost all of that income able to be trained, at a certain point of desperation, to save their bonuses and pay increases?
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grettman
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Re: Do budgets work?

Post by grettman »

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?
No. Twitter-LOL!
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mikejuss
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Re: Do budgets work?

Post by mikejuss »

MrBobcat wrote: Sat Apr 10, 2021 11:36 am
Jags4186 wrote: Sat Apr 10, 2021 9:32 am
I always start a budget this way:
X = income
Y = goal savings
Z = X-Y = how much I have to spend
That's where I end my "budget".
The issue for me is the "savings goal" line. It's hard to know what that should be, what life with throw at me. I'm always slightly uneasy about it, even though I save over half of my income.
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MathWizard
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Re: Do budgets work?

Post by MathWizard »

Not really for us.

What worked has been
Increase human capital through education and continuous learning
pay yourself first,
Bank half of each raise
and use tax advantaged accounts ,
decide together on large purchases.
BalancedJCB19
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Re: Do budgets work?

Post by BalancedJCB19 »

Gus Chiggins wrote: Sat Apr 10, 2021 9:03 am
BalancedJCB19 wrote: Sat Apr 10, 2021 8:44 am I wholeheartedly agree and many years ago after reading the Automatic Millionaire, I knew I was doing it right. If I am maxing out my 401K, and have other items taken out of my check automatically for what I want to save for, there is no need for me to budget. I have been doing this for my entire working life even before reading that book and it never failed me and over time I have become an Automatic Millionaire with a paid off home.

When my check comes, it's mine to spend on my living expenses and whatever else I feel the need to spend on. Budgeting is like a diet where you count every calorie, it would never work for me.
First off all, congratulations on your success!

I’d just like to point out that, to me, this is essentially a budget. A very crude, essentially three item budget; taxes, saving and spending. And by only spending what’s left (i.e. not going into CC debt), you are effectively following your budget.

It sounds like you earned more than enough to not require a high level of optimization and therefore didn’t feel the extra effort was worth benefit. And based on your results, it looks like you were right! With that said, it’s not as though you were unconstrained in your approach, which is exactly the point of a budget.

To play on your analogy, it would be like someone saying I’m not going to count every calorie but I’m going to eat three small healthy meals and exercise for one hour a day. You may not be counting every calorie, but you are essentially implementing the underlying concept, a diet. As with much of life, the key is finding out works best for you.
Thank you!

Very true, but I think many people who talk about budgets think about putting pen to paper and making sure every penny is accounted for and written down, daily, weekly or monthly. This took no effort on my part. I just knew what came in my check was mine to spend and part of that was my monthly bills and after that I knew I could spend that check without feeling I was neglecting my future.
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Re: Do budgets work?

Post by Metsfan91 »

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?
No. Don't agree. Budget requires discipline. People can turn things around with discipline.
"Know what you own, and know why you own it." — Peter Lynch
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Re: Do budgets work?

Post by 816_Feet »

Ivygirl wrote: Sat Apr 10, 2021 10:17 am The whole world is set up so bizarrely it's like it's intended to make us fail.
I think this is the major obstacle for those who are just starting out, have lower incomes, low impulse control, etc. It's the norm in American society to live beyond your means. People are often incredulous that their income can't support the lifestyle they're living. Many of my frugal habits are varying degrees of taboo: bringing a lunch to work, driving an old car, living in a small home, riding a bicycle to work, cutting my own hair, saving 1/3+ of my income. It takes active effort to do these things and sometimes deflect the small amounts of judgement that come with them.

You're getting sample selection bias by asking this question on this forum. Of course budgeting works for us, but we're outliers. I suspect the financial advisor's observation is mostly accurate for the larger population.
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Lee_WSP
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Re: Do budgets work?

Post by Lee_WSP »

mikejuss wrote: Sat Apr 10, 2021 11:38 am
CPonzi wrote: Sat Apr 10, 2021 11:20 amDon't financial advisors predominantly cater toward high earners. Not knowing the particular financial advisor, I'm assuming most of his or her clientele are in or near the "high earner" category. With hourly financial advisors making $100 to 300 per hour, I wouldn't expect they attract many low income clients.
This raises a related question: are people who earn decent incomes but spend almost all of that income able to be trained, at a certain point of desperation, to save their bonuses and pay increases?
Doesn't that describe most Bogle heads and physicians on fire?

In response to the original quote, what the blank does earn your way out of it even mean?
Last edited by Lee_WSP on Sat Apr 10, 2021 12:04 pm, edited 1 time in total.
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