Leave Slack or Have a Budget?

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Last week I read a post in Wise Bread that left me confused. The author argued that you don’t need to make a budget, you just need to “leave a little slack,” by which he meant underspend. His argument was that you can’t be prepared for life’s little emergencies if you budget every penny, because you don’t have flexibility. I think this argument is a willful misunderstanding of how budgets work by someone who just doesn’t like budgets.

When Is Not Having a Plan Actually a Plan?

As the author describes it, he does actually have a plan. His plan is to spend less than he earns. In order to do this, he has to have some idea of how much he earns, and have a mental tally of what he spends every month. He may not think of it as a formal budget, but it’s a budget nonetheless. If he spent willy nilly, he wouldn’t be able to intentionally spend less than he earned, because he’d have no idea when he reached that point.

Budgets Don’t Contain Hard Numbers

This is where I think people get scared – they worry that if they make a budget, then they’ll only have $61 dollars to spend on food and $13 to spend on personal care, etc. This is not how budgets works. Budgets work in round numbers. We don’t budget $423 a month for food. We budget $450. We usually come in less, but if we come in over, it doesn’t bust our budget. We still have flexibility in there because other categories will probably come in low.

He also argues that budgets are pointless because prices change. If you budget $41 for fuel and the price goes up, you’re screwed. That’s just poppycock. Again, budgets adjust. For things that can vary wildly like fuel or energy costs, you pad the typical amount to cover possible overages. Then if you have extra, off it goes to savings for the time when you have to exceed the pad.

Budgets Aren’t Adjusted Every Time an Expense Changes

This is the other misunderstanding. The author believes that you have to change your budget every time one factor of the budget changes. This just isn’t true. A budget is an overall plan to make sure you have enough to cover everything and some leftover. Yes, if gas prices rise over time, you’ll need to adjust the budget upward. But you don’t have to adjust the budget because you spent $30 extra on groceries on month. You don’t have to make a whole new plan every time one item changes for one month.

My concern with this “leave a little slack” plan is that it’s hard for people just learning to manage their finances to just “leave a little slack.” Certainly, you can do that once you’ve gotten out of debt and comfortably understand how your spending correlates to your income. But if overspending got you into debt in the first place, then a budget is the only way to retrain yourself.

It’s like going on a diet. You’ll lose weight if you cut calories for a few weeks, but it will come back when you start eating normally again. However, if you learn to change the way you eat by adjusting portion sizes and truly understanding the impact of the foods you eat, you don’t need to track it forever. Money is the same way – eventually you can get there, but don’t start there.

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