Here’s the problem with budgets: People often interpret them a little too rigidly.
I know of a situation where a woman budgeted X for groceries, and her bill at the checkout line came to X+$20. She stood there and said, “I can’t afford my groceries,” because she went over her budget by $20. True story.
That is the type of stupid stuff that happens when you put people on a budget.
But some people need stupid rules because they have zero discipline. Unless they follow a budget to the penny, they are going to spend like sailors.
I am sorry that these people exist. As many others have observed before me, rules are for the stupid.
Read: Don’t ever lend money to family and friends — it’s not worth it
Save until it hurts
Even though I am not high on budgets, I am high on radical saving. I like a simple heuristic: Save as much as humanly possible or save until it hurts. That usually does a better job than an actual budget, and is a lot less work.
Of course, that works for me because saving comes naturally to me in the first place. So it might not work for everyone.
What does “save until it hurts” look like in practice? You are driving down the road. You are thirsty. You think of stopping at Burger King and getting a large Diet Coke. But you are saving as much as humanly possible. So you don’t spend the $2.50 and you keep driving, and you stay thirsty.
Now, here’s the thing. If you are saving as much as humanly possible, you will experience discomfort. Physical discomfort. That is when you know you are doing it right.
You will go to a restaurant and get the cheapest thing on the menu, whether you like it or not. That is mild discomfort. You will go to Dick’s Sporting Goods for a pair of running shoes and get the $39 shoes instead of the $129 shoes. That is mild discomfort. You will buy a gently used car that is one year old rather than a new car. No new car smell. That is mild discomfort.
The goal is to save and save and save so you can reach a point where you no longer have to experience discomfort.
I can speak from experience — it is nice when you get there. But I was once forced to make those economic choices.
People don’t like discomfort
Some people will never make any sort of economic sacrifice. Hey, a wine fridge sounds like a good idea. Hey, the panoramic sunroof sounds like a good idea.
My story is one of economic sacrifices. I lived far below my means during a time when I was expected to live far above my means. When I was at Lehman Brothers, I bought a tiny, cheap house in a neighborhood that was not even really up-and-coming.
I famously bought Men’s Wearhouse suits. I brought cans of Chef Boyardee to work for lunch. I was comically miserly, but it ended up being necessary.
Lehman went bankrupt, my stock vaporized, my income disappeared, and I had to start from zero.
But I had a seven-figure bank account from what I had saved in the good years. And that meant I was able to take risk when nobody was in the mood to take risk.
Dave Ramsey has an expression for this: “Live like no one else, so you can live like no one else.” I have my disagreements with Mr. Ramsey, but I like this turn of phrase.
This is why I hate budgets
On the other hand, you can’t spend your whole life in doomsday-prepping mode.
I have some relatives who were prodigious savers all their lives. They have never allowed themselves any extravagance. Now they are too old and physically infirm to enjoy their wealth.
There are two types of people in this world: People who spend too much, and people who spend too little. Sometimes, the latter are even more frustrating than the former.
Some people say that budgets give people good habits. I am not so sure. Budgets are good for people who follow rules.
But what if there are no rules? There are no rules in life. If you make more money, will you change the rules to allow yourself occasional extravagance?
Who gets to change the rules? If you change the rules, are you cheating on the budget?
This is why I hate budgets.
Some people inherit a ton of money and never spend a minute of their lives in discomfort. That does not apply to most of us.
Unless you are blessed with unlimited resources, you are going to spend at least some of your life in a state of discomfort.
Better to do it while you are young, when you are better able to bear it.
Jared Dillian is a former Lehman Brothers head of ETF trading. In a special report, he writes about how to properly position your portfolio for what he says is an upcoming stock market crash.
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