Let’s face it, budgets rarely work. They have as much success as your best friend’s fifth attempt to achieve a New Year’s resolution to get back in the gym.
Why do budgets fail so often? The reason is willpower. We live busy lives and the last thing we want to do in the morning before coffee or at night before bed is count up how much we’ve spent all day.
I believe the days of budgeting need to come to an end. Budgets are just like diets. They start well with intention and belief, yet are always snuffed out by procrastination or the lack of commitment.
We start our path to both health and financial betterment all wrong. If you treat your habit like a diet plan, which tends to stay in Research & Development, those habits will never actually form. By definition, diets sound temporary; they never sound like a permanent habit.
The families that keep the weight off or manage their finances for success have learned to set their habits on autopilot, making them lasting, not short-term.
So, how do you accomplish that?
First, your psychology has to change. The new method I am about to suggest removes the focus from what you’re making and spending, and instead puts the focus on saving and giving.
If I was teaching my son how to drive it would be an awful idea to tell him to concentrate on the guard rails and never take his eyes off them. He’s going to be banging against every guard rail down the highway.
Yet, in finance we are reminded to focus on your expenses and where your money is going down to the last penny.
One paradigm leads you to strive to make more money every year, then spend it all just so you can try to earn more to keep up with the spending. The cycle repeats over and over again.
Budgets are exhausting and time wasting. You can spend hours poring over your bank statements trying to make everything balance. Thankfully there is a much better way and it starts by financially putting first things first. The technique I’ve found that works best with my clients and myself is what I call FABRICATED POVERTY.
Begin with your gross paycheck, either weekly or monthly. You need to first come up with your baseline, the minimum standard; start with the non-negotiables like taxes, water, utilities, groceries – you get the picture.
Now that we know this amount we need to start off the top by pledging 10% of our gross check to charity or tithes.
Because if you spend everything first you will have only the change to put in the cashier’s charity-of-the-week jar.
Next, 20% should go to long-term saving. Not the spend later fund but spend for retirement fund.
Lastly is the fun part because 70% is what you get to spend. But what if all your bills above the baseline do not fit within the 70%?
Then it’s time to make the hard calls of downsizing your life, such as finding a less-expensive apartment or house and trading in the car for a cheaper one.
Burn the ships behind you if you must but you have to learn to get your spending down to 70%.
If you follow this formula you won’t need a budget. Instead you’ll need a retirement account that can keep expanding with you because you’re heading on the right track to success.
Andrew McNair is the president of SWAN Capital, an independent financial services firm in Pensacola, Florida. He has experience in the fields of retirement income, wealth preservation, and long-term care and has a strategic partnership with an attorney for estate planning services. McNair also is the author of Tithe: A Living Testimony and Don’t Be Penny Wise & Dollar Foolish. His financial commentary has appeared in the Wall Street Journal, Forbes, Fox Business, Market Watch and Kiplinger.
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