Friday, February 17, 2012

The Myth of the Household Budget


The Myth of the Household Budget

Household financial advice starts with the budget.  Given the stunning amount of household debt that’s around today, we may want to rethink that one.  It’s like using a diet to address the obesity issue.  Not only does it not work, but it suggests that the inability to follow either the budget or the diet is the fault of the client and not the counselor.

There are a few reasons that budgets don’t work:

They give the householder permission to spend up to the budget limit each month, even if they don’t need to

They can’t prepare you for the catastrophes that sink most budgets – like the $3,000 transmission repair

In a lot of cases you simply can’t live within the limits the budget sets out

The savings portion may be too small

In summary, concept of a household budget is just too rigid to accommodate the average family’s complicated life.  Instead you should worry about being further ahead at the end of every month (to adequately prepare for that impending $3000 transmission repair).  And that means every purchasing decision should be reviewed with the monthly goal in mind.

Frugal people think about every purchase, and because they do, they wind up purchasing less.  So at the store, they think about: 1) if they really need something and; 2) how little they can get away with paying for it.

Frugal people save, and they like to watch their savings grow.  They sleep better at night knowing that when the transmission fails that they can pay for it.  More importantly, they know that each moth their net worth increases.  And that increase in net worth is the goal, not staying within the budget.

3 comments:

  1. The first phase of getting a person/family finances under control is writing?tracking where the money goes...Most people didn't have the foggy idea where all the money went....All they know is for some strange reason theyare "short" money....Thus after they see where the money goes a "budget" Thank U

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  2. Here is something i did in past years when living pay check to pay check......On payday wait 2 days till you "touch"(use to cash the check) then if you can do that add 2 more days till you "touch" the money....Soon you can be a couple pay checks ahead...Two days should hurt that much...It will get a lot of people out of that "panic" mode of having to spend the pay check....I used to do 3 days but maybe you can only do one..Either way this helps build frugal Thinking on which I think the point of this site is...

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  3. Thanks for stopping by and taking the time to leave some comments Frank. And I agree about the waiting part.

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