A friend recently asked how I budget and track my spending.
I don’t – no budgeting other than a weekly review of my credit card statement online to check for any unauthorized payments. This is a thought experiment as budgets are often helpful tools, but read on to see that budgets may be useless if you don’t first control your desire to spend – similar to the old adage about rearranging deck chairs on the Titanic.
Why no budget? A budget shows how to allocate the money you have to afford the things you desire. You can go one step further – reducing or eliminating desires themselves. It’s the equivalent of trimming the weeds in your garden, or instead digging all the way to the root and pulling them out for good.
With this method, your remaining expenses on necessities (food & shelter) will likely be more than covered by even a basic salary – the remainder can then be saved toward building a solid financial cushion and saving in order to reach financial independence. Even with a complex financial life, kids, etc. this is still a valid method, see Mr. Money Moustache’s blog for more information than I could ever convey here. Some great books on eliminating desire and finding contentment include:
- A Guide to the Good Life: The Ancient Art of Stoic Joy
- Status Anxiety
- Stumbling on Happiness
- The Millionaire Next Door
In order to achieve any kind of stable, content financial life desires have to be limited and replaced by appreciation for simple, inexpensive or free, daily activities such as being outdoors, spending time nurturing relationships, and learning or giving your time to those in need. Conversely, no amount of money can satisfy unlimited desires due to the effects of hedonic adaptation and our tendency to compare ourselves to others.
Are budgets bad? Of course not -it’s important to know where your income goes each month. At a certain point I think they can become unnecessary if you choose to limit your expenses to well below your income. The cash leftover in your checking account at the end of each month will simply accumulate until you transfer it to an investment account (or have automatic transfers take care of that step for you). You may be asking “but what if all that money starts burning a hole in my pocket?” Again, back to the root of the problem – by tackling your desire to shop, having extra money, not immediately earmarked for spending, becomes a welcome side effect.
Take Away: Instead of framing money decisions as “can I afford this?” instead try to approach purchases by thinking “do I need this and will it bring me lasting happiness?” With that mindset, material purchases should become less important compared to experiential ones, which don’t have to be purchases at all.