Budgets don’t work because people don’t want to spend less. We actually want the “freedom” to buy more. A budget begins to take what your earn, and attempt to get you to live within your means. You immediately start slashing spending (on paper), and you soon find out you’re not left with much money to do the things you really want to do.
So you get discouraged, and in many cases, you give up before you start.
I don’t think that budgets are all bad. To stay out of debt, you definitely need to spend less than you earn. So why do I think budgets don’t work?
Because I think you start by slashing spending without a true idea of what you spend your money on.
I think the first thing that people should do is begin to track your spending! How do you know what to cut spending on if you don’t know exactly where all of your money is going? I think when you track your spending, you’ll easily see where the bulk of your money is being ‘wasted’, and where you can cut your spending.
I’m not naive to think that people will pull out a piece of paper and start writing down all of their expenses, or save receipts to record for later. But the good news is, you can automate this process. For me, I like to you Mint. It’s a free site, where you can add all of your bank accounts, credit cards, investments, and spending. Every time I swipe my credit card, Mint tracks the spending. It knows if I paid my rent, bought groceries, went golfing, or took my team out to lunch.
Once you have a baseline of tracked spending, you can easily see where your money is going. Once you see the categories of where your money is being ‘wasted’, you make adjustments to that. I don’t want to tell you where to cut your spending; you should be able to figure that out.
For me, I noticed some big time spending on work lunches and coffee shops. Did I cut out work lunches and coffee shops? No! But I sure did cut back. And I’m definitely seeing the results.
Most of us know we have to save and invest, but we think we can’t. Until we see where our money is going.
So start tracking your spending and see where you can make an impact. Once you have your baseline, you can create a budget based on your income and spending habits. Then track it during the month to see how you’re measuring against your budget. If you’re over budget in one area, try pulling back in another.
Let me share one more reason that I hate budgets. They focus on cutting expenses, and nothing else.
Too much time is spent on cutting expenses, and not enough on raising income. If you want to spend more, save more, invest more, you should really be thinking about ways you can earn more. Most people can make $500 to $1,000 in the next week if they just think about it and put in a little effort. Sell some of that stuff you’ve accumulated and don’t use. Yard sale, garage sale, Ebay, Craigslist.
You can also go yard sale-ing and flip products. You can create an online newsletter. Write a self-published book. Negotiate a pay raise.
Think about 10 ideas you can come up with to help increase your income or add a side income.
Budgets aren’t the devil. I just don’t think they’re the first step in the process to getting out of debt or creating abundance.
What are your thoughts? Sing up for my email list and let me know. You’ll get my personal email address to share your thoughts.