Apr 032012
 

I try to spend at least some of my time hanging out with people who are more successful than I am. And with hot chicks.

Usually on Fridays, when I’m done with the chips, I head over to my Dad’s office. He (along with his business partner) runs a multi-million dollar business out of a run down retail outlet. The business is primarily real estate driven, between the two of them they own all sorts of properties. There’s an apartment block, many rental houses, and even a trailer court owned between the two of them. Unfortunately, the trailer court is devoid of a banjo-pickin’ inbred sitting on a rocking chair named Cletus.

Throughout their working careers, they worked blue collar jobs. One worked for the railroad for years. The other for a farm machinery dealer. One tried his hand at selling real estate (with only marginal success) while the other ran a taxi. Neither man had the benefit of making six figures per year until fairly recently, when they had both already built up impressive balance sheets.

What’s the secret? Did they receive large inheritances from random great uncles? Were they extra sexy and sold their bodies for lots of cash? (That did not bring up a pleasant mental image) Did they start a crappy frugality blog and sell it for 7 figures? No, there were no get rich schemes involved. They simply lived cheaply, invested intelligently, and slowly accumulated assets. The power of compounding took over, and today they’re in an enviable position, at least financially.

As we talked on Friday, the subject of budgets came up. You guys should already know I don’t have one. Those of you who have one spend hours per month coming up with amounts you can spend on certain categories, all to try to end up with some savings at the end of the month. I, meanwhile, simply pay myself first and live on the difference. I accomplish the same thing, all in about 5 minutes a year. It’s smart, it’s simple, and I think you’re all suckers for not doing it. As long as we accomplish the same goals, who cares how we get there?

My problem with budgets used to be like my problem with forearm tattoos. The problem existed, I just didn’t care enough to do anything about it. I still haven’t done anything about the forearm tattoo thing, (except ranting about it during some Saturday Morning Dump like a year ago) but I gotta do something about the budget thing.

Getting back to the conversation on Friday, do you think the two wealthy guys I was talking to have ever had a budget? OF COURSE NOT. Think about the truly wealthy people you know. How many of them have a budget? I’m willing to bet it’s not very many.

Rich people generally become wealthy because they’re committed to the goal of accumulating money. They simultaneously spend time working harder and finding ways to spend less. They know they can supercharge their savings by focusing on both sides of the equation, so they do. Frugality becomes a way of life for the aspiring wealthy. Spending money takes them further away from their goal, so they try not to.

Meanwhile, let’s look at the average budget. There’s categories for things like rent, utilities, food, and the like. These are true necessities, so I’m not going to argue with those categories. But what about allotting money for entertainment? If you give yourself $100 per month for entertainment, are you going to spend it simply because you’ve allocated money for it? How about your budget for eating out?  Is your budget really doing all it can to save you money?

When I look at the bloggers I know who make budgets, there’s only one I know who is legitimately on their way to becoming wealthy. Formerly Fabulously Broke, Serena from The Budgeting Tool has a net worth approaching $200,000 – and she’s only in her late 20s. She’s pretty pro-budget – after all, she named her new blog after the budgeting tool she created. There’s no doubt that creating a budget has helped her create wealth. But do you know what’s 5 times more important? The fact that she’s maximized her income and cut her expenses like some sort of frugal nut. The budget is only secondary.

How many monthly spending updates do you read where bloggers completely crap all over their spending goals? Yes, I realize stuff happens. But shouldn’t emergency funds take care of that stuff?

Instead of having a budget, can I suggest an alternative? This may be a little extreme for some of you, but if you’re not serious about building wealth, I’m surprised you’re even here. Instead of allocating certain amounts of money for expenses every month, focus on cutting the crap out of those expenses.  Entertainment? Screw entertainment. Work more and use the library.Want a fancy iPhone and the $70 plan that goes with it? Not if you’re going to rich.

Of course, you’re probably not going to want to give up those things. That’s fine, then you gotta make sure you really maximize your income, and plug holes in your spending. If you spend extra on your cell phone, then maybe you should drive an older car. If you spend lots of money on people preparing food for you (like I do) then maybe you should cut your clothing spending to less than $50 per year. (It helps that work gives me a credit towards buying clothes, but still.)

The point is, you’ve got to maximize your saving. I’m don’t think a budget is the way to make that happen.

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  10 Responses to “Are Budgets For Poor People?”

  1. And never get a forearm tattoo.  That’s the surest way never to have a professional job – and yet people pay for that privilege!

    BRB, getting “don’t hire me” tattooed on my arm.

  2. Now you’re just being silly, Nelson. :) Of course you have a budget. You separate money into saving and spending — that’s a budget. Yours is just less detailed.  I use Mint for my budgeting, and it probably takes me five minutes a month to manage it. That said, I do basically do the same as you. Put money into savings and spend the rest until next payday. Though I really like Mint just for the purpose of tracking my expenses and generating reports, because I’m a dork that way.

    Also, I don’t get your beef with forearm tattoos, either. Knuckle and neck tattoos, sure, are pretty stupid if you want to ever work in an office, but forearm? I mean, even if you work in a professional, conservative environment, isn’t that what long-sleeve shirts are for? (Fun fact! I have a tattoo on the inside of my wrist. I’ve never put any effort into covering it up. Not only has it never been an issue professionally, people just don’t notice it. It’s super weird. Just last Christmas an uncle who I see regularly asked me when I got the tattoo. I got it more than six years ago.)

    Anyway, sorry for yanking your chain. :) I do agree that people who spend hours a month budgeting are kind of silly.

  3. Oh, p.s. There’s a good chance I’ll be getting a tattoo on my own forearm in the near future. Oh shit! Can we still be friends?

  4. But you still need a budget with the pay-yourself-first plan, even if it’s just an approximate one in your mind. Otherwise how do you make sure you don’t blow your paycheque on clothes, eating out, and gas before the rent is due?

  5. I like the spirit of this post – focus on earning more, not trying to scrimp and save every penny.  Over time you’ll accumulate more capital buy earning more and investing than you will trying to save every nickel you make.

  6. We used to not budget because we did the whole pay yourself first thing. Then we got a Manulife1 account and we have to budget to make sure we stay on track because an account like that can confuse things pretty quickly. Our budget is really just about keeping our expenses to the bare minimum. We have cut the crap out of our budget categories and are continuing to do so. We sort of pay ourselves first and last. Our budget has all of our fixed expenses, one category for variables all mashed up together along with one debt payoff category and a couple of savings categories like RRSPs. All of this takes $1800 to fund every paycheque (biweekly). Every penny we make over the $1800 goes into our mortgage which doubles as an emergency fund. Most of the categories of our budget are savings too- the clothing section of our budget gets saved up until we need new pants, the car maintenance fund gets saved up until we need an oil change etc. When we didn’t have a budget we did ok but we do better now with a budget.

  7. I truly enjoy reading blog!  It is so down to Earth and really speaks what is on everyones mind.  The fact that you state, “maximize your income, and plug holes in your spending.”  THere are so many people out there with extreme financial issues and cant fingure out why they cant pay off their bills when their monthly expenses are twice the amount of income they are bringing in.  Let’s remember that there are such thing as “Needs” and are on the opposite spectrum from “Wants.”  Things like cable are a luxury and is at the bottom on the list of priorities.  I use an interactive tool to keep me on budget and focused on what the NEEDS are in my life.  Here is the link to an interactive budget calculator:
    http://www.clearpointcreditcounselingsolutions.org/build-a-budget-calculator/

  8. 1. You might be the first person to EVER call me crazy frugal. Even I don’t think I fit in that profile!! (Have you seen my insane spending for March 2012?)

    2. What you say is true, I do max out my earnings and try to (har har) lower my spending but I don’t go crazy and start counting toilet squares.

    3. I was reading the first half before I got to my name, but I was half agreeing, but mostly thinking: I CANNOT live without my budget. 

    It’s even more apparent now for these reasons
    a) Keeps my CAD > USD FX in check

    b) Organizes ALL the spending and expensing I have to do for personal life, work, and in general (everything goes on a credit card because people are stupid here and won’t take cash for flights and hotels)

    c) Throws up red flags when I start spending willy nilly

    April should be a better month….

    Thanks for the shout out. I actually did hit $200k this year, but my taxes/moving expenses in March drop kicked me back down.

    I won’t be back at $200k until maybe May? Then I’m aiming for $250k and saving 75% of my net income.

  9. […] at Financial Uproar asks if budgets are for poor people.  I have thoughts on this which I’ll likely flesh out in a future post – stay […]

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