I always thought budgets were for weenies. That they were an excuse to spend more and then feel pleased that you were “under budget” this month. And if your spending is already streamlined down to the nub, what value is added by additional analysis?
Well my thinking on this is changing. I realize now that I had a debt-payoff mindset before. As MMM likes to say, debt is an emergency. And it is right to approach it with that mindset. You need to pay down debt in a sprint, regardless of how long it takes. That’s why it’s so hard to do and so tempting to avoid! There is no sense thinking about “how much I can spend on X” while putting out a 5-alarm debt fire in your wallet. The answer is “nothing.” And if you’re feeling a bit too cushy with your ramen, you can always downgrade to PB&J. Or cereal. When you are in debt, cereal for dinner is fine.
But the counterpoint to the MMM thinking is that there is no emergency after debt. From there your whole life and interests stretch out ahead of you. Whereas you had no basis for spending on anything in debt, now you could pursue a hobby or fulfill other dreams. You can think honestly about how much you should spend on that, and you are allowed to decide on a number. It’s all up to you! But it’s still pretty hard to decide what the right answer is.
What I have learned is that thinking about spending while in debt is pretty easy. You just don’t spend. And if there is something you desperately want, you just commit to give it a week, and you usually change your mind by then. I have lost the habit of desperately wanting to buy things altogether. But there are still long-term things that I would like to do with my life that cost money. And at some point I will not need to delay these things due to the debt priority. Some things possibly cannot wait any longer.
Nice work clothes, travel, a V8 Camaro… these are all things I would like. Some of them are more practical and defensible than others. The reality is that I could probably afford all of these things; they would just cut into my ability to afford other things. Such as early retirement. But all of these things, including early retirement, are wants. So I can actually choose.
I suppose it is time to think seriously about a long-term budget that I can break down into an actionable short-term plan. For example, say I wanted to be able to retire in 10 years by creating an amount of passive income equal to my take-home pay today. I could figure out how much money I would have to deposit monthly into a Vanguard account, with a conservative 7% annual interest rate. Or I could figure out how many rental properties I would have to buy, and how much that would cost overall and monthly.
And anything leftover each month would be “spending” (or more likely “saving” money). But the point is that using a budget, I should be able to feel confident about spending that little extra money wisely in the meantime. I am concerned that if I treat the rest of my financial goals like a debt emergency, I will have no fun along the way. Early retirement might not come in a lightning fast 7 years, but with a solid budget I think I could live with that.
Do you budget? And if so, do you feel that it is guiding you toward your goals without robbing you of all the fun?
Image from http://www.wikipedia.org