If my mission in life is to get the world on a budget, then I need to convince people that they shouldn’t hate budgeting. In order to do that, I have to figure out why they hate it in the first place. I’ve come to the conclusion that people hate budgeting because it makes them feel lousy without providing anything in return. I’m talking about the old way of budgeting here — not the YNAB Way.
Sometimes, after I’m done working out, I feel “lousy” in that I’m completely exhausted, sweaty, and (if I worked really hard) slightly nauseated. However strange it is, while I’m feeling lousy, I also feel completely satisfied. Why? Because I got something in return (huge, rippling muscles — or something like that).
Budgeting the old way is painful and provides very little value to most people. It’s akin to a punishing run without the “runner’s high” at the end. It’s a strict diet where you still gain weight…
The Old Way of Budgeting
With the old way of budgeting, you decide you’re going to spend $300 on groceries for the month. You’re really ratcheting down. You’re getting serious. You’re going to cinch the belt and get crazy. At the end of the month you realize you’ve spent $380. You forgot that you were having company one weekend. You feel lousy.
With the old way of budgeting, you decide you’re going to just go crazy and not spend a dime on gasoline (yeah, right). You budget $150 and spend $250 because you ended up having to make multiple trips to the airport. You feel dejected.
Your name becomes a byword for “boring” because you set an entertainment budget so unbelievably low that if you don’t return the one DVD rental you allowed yourself, the late fee will cause a stratospheric variance. Well, it turns out you’re a bit more social than you allowed yourself and you also go to the movies with your friends (and it wasn’t even a good movie). You feel defeated.
This is the old way of budgeting. No wonder you (and everyone else) can’t stand it. You get beat up and don’t even win a consolation prize.
Seriously. Where is the value here? The part where you’re feeling dejected? Or how about when you’re going to throw in the towel because you’re completely defeated? Where is the value in this variance check at the end of the month when you see how far off you were from your budget?
A Small Minority Gets Value from the Old Way of Budgeting
There is a small minority of people that get some value from the old way of budgeting. They like seeing how good they are at predicting what they’re going to spend for the month.
Think about this. The only thing you’re really learning when you’re setting a budget and then recording expenses is how good you are at predicting what you’re going to spend. It doesn’t mean you’re necessarily frugal or managing your money. It just means you’re good at predicting what will be spent. Is there inherent value in that? A bit of an ego stroke perhaps…but not much else.
In business, prediction is a great skill. If you can reliably predict cash flows from the next big craze then perhaps you can become a stock analyst and make your millions. But what value is there in predicting that you’re going to spend $300 for groceries and then spending $290?
The New Way to Budget. Improving Your Handling of Life
Going forward, you are not a budgeter. You are an air traffic controller. Your job is to make sure planes get to their destination on time. You want to make sure the planes don’t run into each other.
I mentioned this in the webinar a few weeks ago. It’s important that you begin to look at budgeting in a different light. The real value of budgeting comes because you’re proactively deciding where your money should be going at any given moment.
Yes, you’ll sit down and give each of your dollars a job at the beginning of the month (Rule Two). So those planes have taken off, so to speak. But if you find yourself in the middle of the month with two planes heading right at each other, what do you do? Do you sit there and wring your hands because you don’t want to show any variance from how you originally set things up and then how things actually played out?
Where will you derive value in this situation? Will you derive value from having the disaster happen, and then being able to look back and say, “Well, I guess I didn’t predict where my money need to go as well as I should have.”?
The value comes from seeing that things have changed and a disaster needs to be averted. You change the planes’ routes and you’re done. Or in other words, you adjust some numbers and you’re done.
It’s a fine line between being reactive and proactive.
Some will say that you’re now being reactive, instead of proactive with your money. I couldn’t disagree more! You proactively planned at the beginning of the month. You did your best. And yes, things would have been great if all the planes had stayed perfectly on course and nothing out of the ordinary ever happened. But something happened. You received new information. With that new information, you changed your mind.
You see, the value is going to come because you set out with a plan, with goals, and anything that happens is either helping the plan, or thwarting it. In this way, when a disaster strikes (and it will) you’ll immediately recognize that Hey, this isn’t part of the plan – what needs to be done?. The difference there is that before you were budgeting (the YNAB Way), you didn’t have a plan at all. The disaster struck, you reacted based on whatever emotions you were feeling at the moment, and moved on (hopefully forward).
What I’m talking about here is having that plan at the beginning of the month and then averting disasters as best you can with that plan in mind.
“…but I love that I can make a budget on the 1st of the month and then on the 15th, move things around so the budget reflects my actual spending. Yes, I realize that defeats the idea of the budget…”
That just defeats the old idea of the budget. The key is that you stay zero-based (so you’re living within your means) and you start the month (or each paycheck, when you’re Pre-Rule One) with a plan.
You are an air traffic controller. You make sure all of your planes have destinations and you do your best to get them there on time. But if a disaster is going to strike, you do something about it. You take in the situation, recognize the routes, schedules, etc. and, with that original plan as your framework, you make the best decision you can to avoid disaster.
That is budgeting. Planning and then reacting to changes according to your plan.
It turns out it also makes for great living.