Over at Get Rich Slowly, guest writer Erica Douglass has a post describing “The Ten Minute Budget. In the post’s introduction, she explains why she used to have so much trouble creating a budget:
I realized that I had two beliefs I needed to get past before setting up a budget:
- I felt like a budget would take a ton of time and effort for very little return.
- I liked what I considered the “freedom” of being able to spend whatever I wanted, when I wanted to spend it.
I can relate to both of these. Before I started getting my finances in order, I felt that creating (and sticking to) a budget was a lot more work than it would be worth to me. I knew, after all, how much money my regular bills were. I knew those bills couldn’t be negotiated, and that simply writing down how much I was going to spend wouldn’t help me. The fact that the set plan would keep me from doing things I wanted to do was a secondary, but not at all trivial, obstacle to the creation of a budget.
When I finally created that budget and started sticking to it, I gradually came to the same conclusion that Ms. Douglass did:
Much to my surprise, creating a budget actually gave me more freedom! Instead of having a panic attack when I got my credit card statement, thinking, “How am I going to pay this off?”, I knew where I stood every few days. Instead of forcing myself to pay cash (which is easily stolen, or used and then forgotten), I had an at-a-glance look at exactly what I was spending, and where I was spending it, every month.
Emphasis in the original.
Of course, I don’t really ever go a “few days” without knowing exactly where I stand. My wife will tell you that I am somewhat obsessive now about knowing exactly what we’ve spent, and I “Quicken” at least once a day (usually at least twice). I don’t really care what we spend the money on, as long as I know that it’s been spent so I can record it accurately. Our budget is not strict; we pay the bills, put aside money for necessities (food and gasoline, mostly), some extra for saving, and the rest can be spent on pretty much whatever.
Still, it was shocking to me that controlling my spending seemed to give me more freedom. I’ve gradually come to realize that by controlling my spending habits meant that I had stopped them from controlling me. Before then, I’d spent what I wanted, and I thought I was free, but that thoughtless spending shackled me with worries about whether or not I had the money in the bank to cover the purchases I’d been making.
One last point that Ms. Douglass mentions really resonated with me:
Many financial authors support a cash-only system in order to help get yourself out of debt, since spending cash is more tangible than swiping plastic. However, a budget, updated every few days with data from your card provider’s website, gives you the same knowledge of where your money goes immediately. Plus, a credit card offers consumer protections, down-to-the-penny accuracy, and rewards points!
The emphasis above is mine.
I like Dave Ramsey a lot, but this is one of the things that annoys me about his program. He insists that, because studies have shown that most people spend more money when they use plastic than they would have spent if they’d used cash, it must be true for all people. The truth is, though, some of us are just plain weird.
I only really track the money that’s in the bank accounts, so once money is outside those accounts, it becomes immaterial to me. If I have $300 in my wallet, it’ll be gone in no time and I will have absolutely no idea where it went. On the other hand, if there’s $300 in our checking account, I keep track of every penny that disappears from it, and spend it much more slowly.
Anyway, the entire guest post (and, indeed, J.D.’s entire Get Rich Slowly blog) is well worth the read.