Why Budgeting is a Waste of Time



August 14, 2015


JRW_WW.jpgThere’s an old saying that when you need a teaspoon of medicine, take a teaspoon, not a pound. Too much medicine can be as bad as none at all. The same caveat applies to household budgeting. I’ve had clients go overboard with it. Call it Quicken Addiction. In the interest of full-disclosure, it was once my problem too.


I used Quicken religiously. I downloaded data daily. I reconciled accounts every month. But I came to realize the time that all of this took from my life far outweighed the value received. It’s like looking at your gas gauge every five minutes as you drive. Unless there’s a problem, it’s totally unnecessary. Sometimes there may be a problem, of course, or you may need a periodic financial check up (say, every two to five years). In those cases, doing a detailed budget to see what your family’s exact spending patterns are can be valuable. But it should only be a temporary exercise.


A more effective and time saving approach is to simply save what you need to reach your financial goals and spend the rest. Speaking very generally, if you want to put a couple of kids through college and have a comfortable retirement, you probably need to save 15-20% of your gross income.


And that money should automatically go where it needs to be, such as in a 401K or 529 college plan, without you having to write a check. Have the funds auto-debited from your account. That way you don’t even have to think about it.


Financial confidence and peace-of-mind follow as you watch your net worth grow, not from knowing that you spend, say, $1,000 and not a penny more on groceries every single month.


An exception to this would be expenses that must be tracked for tax purposes, such as charitable deductions. Those should be tracked to the penny. But doing that can be as simple as having a single folder (real or virtual) labeled “charitable giving” which contains all of the individual amounts.


If you feel like you don’t have control over your financial life, are stressing over the destination of each penny, or if you lack a comprehensive plan, having a PERSONALCFO who can help you find the right path and save you needless worry going forward. That’s what PARTNERSINWEALTH offers. To learn more about us, please contact Jim Waters, CFP®, at 713.964.4028 or jrw@partnersinwealth.com.