People are so averse to creating a budget that financial advisors across the country have tacitly agreed to change what we call them. Now we create “spending plans” to avoid the stigma. But why are budgets so stigmatized? In part, people don’t want to limit what they spend on themselves. And that aversion seems logical – If you buy something that brings you pleasure, you don’t want to feel bad about it. But there is something even more subtly nefarious at play. People don’t want to be “on a budget” because it seems too pedestrian; it implies that they cannot afford to live a comfortable lifestyle and must limit their spending.
But not all budgets have to be a scorched earth, living-on-rice-and-beans misery. Budgets help you reach a goal, even if that goal is the purchase of a Bugatti or winter home in Miami. The best kind of budget is created with your current lifestyle in mind, harnessing your financial strengths and leveraging them to maximize your wealth. Essentially, the purpose of a budget is to identify and eliminate expenses that add nothing to your lifestyle and prohibit you from building wealth. The best budgets increase savings, lower debt, while also increasing your standard of living.
The point of a good budget is to make you think before you spend money, not to prohibit spending entirely. It allows you to consider whether or not a given purchase falls within your financial plan. Buying and consuming in an impulsive manner isn’t healthy for anyone. If it becomes habit, not only will you become a selfishly entitled and miserable person to be around, it will also have a dramatic effect on maximizing wealth accumulation. The prototypical over spender maxes out multiple credit cards and lives well outside their means. In this case, a budget is necessary to fix a huge financial problem. But the principal still holds true with those who can spend money capriciously but shouldn’t.
For instance, if you absolutely love watches and adding to your collection truly makes you happy, then if it falls within your spending plan, you should absolutely not feel bad about spending whatever amount you and your spouse have determined is reasonable. But if you couldn’t care less about watches and only want one because a golfing buddy just bought one, then save the money for something that you will actually enjoy. Don’t waste money on an impulse; you know you’re going to spend money on your true passions, so savings and investments will always be shortchanged. In the end, you won’t be any happier, but you will be poorer.
So if you don’t have a spending plan in place, no matter how much money you make, you are missing opportunities to maximize your wealth and increase happiness. Talk to a financial advisor about establishing one that will help you fulfill your financial potential.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.