Category: Sage Advice

I have never made a budget in my life. Never having made one, I have never had to adhere to one. The budgeter is involved in a negative enterprise: he essays to control and curtail spending. He allocates so much money for this, and so much for that, and strives to stick to his limits. But positive methods are often superior to negative ones. If you want to lose weight, for example, it is better to exercise and burn more calories, while holding your caloric intake constant, than to eat less while holding steady on caloric expenditure. (Aside from the optimal course which is to do both at the same time.) Part of the reason for this is that it is harder to break an old habit than to begin a new one.

Similarly with budgeting. To budget is to approach your personal finances negatively when a positive approach is superior. Instead of setting limits to spending in various categories, specify target savings and investing amounts, and aim high. The Wealthy Barber has a chapter entitled "The Ten Percent Solution." As I recall, the author recommends investing 10% of gross income for long-term growth. That's chickenfeed to my conservative mind. We save and invest far more than this.  The best way to do this, of course, is by automatic payroll deduction. You arrange for your employer to direct deposit some percentage of your income into the account of your choice. You then live on what is left over. 

Why do you need a budget? If you are self-disciplined you will naturally watch your spending, and of course you will never ever use a credit card for its credit feature. You will use it only for its float, record-keeping, rebate, and convenience features. Allow me to brag so as to make a point that is very important for everyone. I have never paid a cent of credit card interest in my life, and in the last several years, each year I have received $400- $500  cash in rebates for the use of a couple of cards which charge me no fee for their use. The credit lines are huge but I go nowhere near them, and the interest rates I could not care less about. Not only that, but the 'float' makes me even more money. Let's say I have the use of $2,000 for six weeks. During that period the goods are in my possession but the money is at my disposal in a cash reserve account earning interest.

Suppose you are a leftist knucklehead who hates 'corporate America.' What better way to stick it to the credit card companies than by becoming a free-rider?

So I ask again, why do you need a budget? If you are self-disciplined you will naturally watch your spending, and if you are not self-disciplined then you will lack the discipline to adhere to your budget.  Or is this a false alternative?

When I was a graduate student, 'back in the day,' I lived on 2-3 K per annum. That was in Boston, one expensive town. And then I got a job which paid for starters the princely sum of 12 K per annum. I said to myself: "Surely, I can save and invest half of that!" But attitude is everything. Attitude and will and good judgment. For example, if you are inclined to become financially independent, then you would be a fool to marry someone whose idea of Nirvana is a wallet full of charge cards with unlimited credit lines.

The moral side of the economic problem is paramount to a conservative like me. Those who can deny themselves and defer gratification can become financially well-off in a stable political and economic environment such as we enjoy in these United States. But of course people will not deny themselves and defer gratification. So they must suffer the consequences. The problem is akrasia, weakness of the will. The fundamental problem is not predatory credit card companies, subprime mortgage scammers, and the payday loan sharks. For if you are self-disciplined, cautious, and diligent, they will not be able to get a handle on you.