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3 Reason Budgets are Overrated

Why You Should Build a Spending Plan Instead

Budgets are Overrated. Why you should use a Spending Plan instead.
Budgets are Overrated. Why you should use a Spending Plan instead.

What is a Budget?

A personal budget is a summary of your income and expenses for a defined period, typically for a month used to track your finances. Budgets will only work if you are honest with yourself about your current situation.

I have spent the majority of my life creating and re-creating a personal budget in excel and I found that they are very overrated. My frustration with budgets have led me to creating a simple and easy to use Spending Plan with a designated goal setting guide. Click here to check it out!

3 Reasons Budgets are Overrated

1. Budgets feel restrictive.

Personal finance is just as much about managing your emotions and psychology as it is about managing your earnings and spending. The word "budget" is often associated with restricted spending where the focus is usually on minimizing your spending, saving as much as possible, and investing the rest.

I love investing as a wealth preservation method - more on this later.

However the idea of cutting the simple joys of life for an un-promised future is irrational.

The traditional money-shaming example is with Millennials and their Coffee. “Cut the coffee and you’ll be a millionaire!” is promoted by nearly all the CNBC personal finance experts. Mathematically, they aren't off.

This assumes:

  • No severe changes to your lifestyle that affect your ability to contribute consistently.

  • Your life expectancy is greater than 40 years.

  • No big dips at the time you want to make withdrawals.

It is great in theory however the 7% rate of return is the moving average across the 40 year investment period, year to year returns are more likely to vary widely. For example in 2019, the S&P returned 31.5% and the year earlier returned -4.4%.

2. Budgets promote following your money.

In my experience, budgets have always been reactive rather than proactive - Budgets show where your money has been, not where it is going. More importantly, budgets ignore where you want your money to go.

Typical budgets like the 50/30/20 budgets focus on income allocation towards specific needs, wants, and savings. 50% to general living expenses, 30% to wants, and 20% to savings. You will spend a day assessing these goals and setting your allocation only to revisit it the next month finding that you overspent.

This consistently happens because you haven’t set your Spending Goals yet. Over the course of your life, what do you want your money to do for you? Setting clear short, mid, and long term goals is critical for you to prioritize your spending and to begin leading your money with intention. Check out my post on Goal Setting here!

3. Budgets are not a One Size Fits All Solution.

Budgeting templates and systems are usually set up as an holistic solution that will work for everyone.

In addition to setting your goals, being able to customize your own spending plan is key.

Everyone’s situation is different; you may earn more or less than another but live in a higher or lower cost city.

Spending plans allow you to actively allocate your income to help you reach goals. This can be unique to any one, as long as you set your intentions!

How is a Budget different from a Spending Plan?

Spending plans allow you to have a better gauge of the pulse of your money and your existing spending habits. Budgets summarize your finances with the goal of cutting costs to invest for retirement. Spending Plans are driven by your goals over time.

Simply put, your mentality is what makes a spending plan better than a budget. My easy to use Spending Plan has helped me:

  1. Focus on scaling what I have rather than looking for ways to cut the simple joys of life.

  2. Control my money rather than it controlling me.

  3. Tailor my plan to my different goals and even incorporate them with my partner's based on our existing lifestyle.

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