Accumulating Wealth: Why Budgets Never Work

Accumulating Wealth: Why Budgets Never Work

June 02, 2021

Over my ten-year career helping people build wealth, one thing is clear; budgets do not work. Tracking ‘this and that,’ developing spreadsheets, and creating Mint accounts do not change habits and are not wealth-building activities. Quite frankly, and I have seen this repeatedly from clients, prospects, and myself: a budget is an excuse. It is an excuse to kick the can down to the road and avoid the real issue at hand: you are not saving enough.

Imagine formulating a goal of saving an additional two percent into your company retirement plan (401(k) or 403(b)) and ‘looking for things to cut out’ by printing off last month’s credit card statement. I am sure you can find a subscription or two to cancel, but after that, the exercise becomes a self-inflicted guilt trip. Looking into the past, you are punishing yourself for past actions that at the time were perfectly fine and fit your budget that day. No wonder people dread working with a financial advisor – it feels like the dentist to me!

Let us try a different method. Instead of looking into the past and punishing ourselves, let us take a little leap of faith. Take that two percent you want to save, multiply it by your salary and then divide that by 12 months. It could look something like this:

2.00% times $100,000 is $2,000. Divided by 12 is $167 per month.

There you have it. Do not try to find $167 in past statements. Do not stress about what you are going to change about your spending habits. Just internalize the goal and keep living your life. I can assure you that your best self, over the next 30 days, will naturally recognize the least meaningful $167 spent and naturally weed it out of your system.

It might, and often for me, happen while you are reviewing your Amazon shopping cart. It could happen while you are scrolling through Instagram or Facebook. It could happen anywhere because each value system is far too unique and personalized for any form of literature, much less a blog.

So, send that note to your 401(k)/payroll, adjust your monthly transfer, but do it right now. Then trust your future self that you will do the right thing, and life will still be great – because it will.

R.I.P. Budgets 2021