Budgeting: Consider a Less Labor Intensive Approach
For those of us that are in the personal finance business, the thought of putting a budget together, while not terribly exciting, is probably not considered a large task nor is it considered intimidating. We know what has to be done and most of us, I suspect, use the traditional method of determining expenses, line by line, and socking away the appropriate amount of money each month to make good on each of these expenses. Time consuming, no doubt, but not a problem for those of us that live in this world.
However, for those that have never budgeted or have a fear of detailed numbers or have a fear of what a structured budget might do to their lifestyle, the thought of creating a budget may be viewed as ominous or, at a minimum, restrictive. So, rather than engage in a practice which they know is probably good for them, they avoid “facing the music”, if you will, and fail to budget altogether.
In our ideal world, we financial counselors would have each of our clients working from a traditional detailed budget; showing expenses, due dates, allocated funds, accounting for fixed and variable expenses, etc., but, unfortunately, this methodology will not work for everyone. Some people just can’t live with the structure of a traditional budget or don’t have the necessary discipline (many would admit to this I’m sure) to log expenses on a routine basis and monitor their budget activity. So how else might we sell budgeting to those that are unwilling to adhere to a traditional budget?
A Plan B method for budgeting
Before entering into a budget, financial counselors would typically suggest that clients have goals established; short-term, possibly medium-term goals, and long-term goals. In doing so, of course, we would ask our clients to put away the funds necessary to achieve these goals via their budgets. In other words, there would be a line item in the budget that would indicate X number of dollars are being assigned to short-term goals this month and X number of dollars are being assigned to long-term goals such as retirement.
For the individual or partnership that finds the structure of a formal, documented budget to be overwhelming or impractical due to time constraints or where they lack interest in maintaining such a plan or they simply don’t have the discipline to manage a formal budget, there is hope in Plan B.
The Plan B budget involves two basic steps:
1) Goals are established and the cost to attain those goals is determined and money is put aside regularly to achieve these goals.
2) Expenses are determined and the appropriate amount of money is put aside regularly to ensure expenses are paid on time every time. Plan B budgeters are encouraged to pay bills no later than the budget due date via a bank billpay system.
The fundamental difference between the traditional budget and the Plan B budget I’m describing here, is that after I determine goals and expenses in Plan B, I don’t keep a running record of expenses and payments via a formal budget plan. While, as a personal finance professional, I don’t consider this the preferred way of budgeting, I view it as a reasonable alternative for those that don’t want to take the time to create and live by a traditional budget or are afraid of the structure and discipline that goes along with a traditional budget.
You and I may see a budget as putting oneself in a position to spend freely after expenses are paid and goals are funded. Oftentimes, clients will view a budget as inhibiting and something to be avoided, because of the perceived negative impact on their lifestyles.
A Plan B budgeter may determine that a reasonable long-term retirement goal is $1 million dollars in assets by age 65. The budgeter, in this instance, will set the amount of money aside each month that is necessary to reach this long-term goal. Since the budgeter may have avoided the traditional budget due to a shortage of knowledge and discipline where financial matters are concerned, hopefully this Plan B budgeter now puts retirement savings on automatic pilot and has the required dollars taken out of his/her paycheck each month and put against the pre-established $1 million dollar retirement goal.