The 10th Man

Do I Need a Budget?

November 1, 2018

Eh.

Probably not.

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I am a bit like the Joker. Do I look like a guy with a plan?

The problem with plans is that people 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.

The problem is, some people need to obey 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.

Even though I am not high on budgets, I am high on radical saving, so I like a simple heuristic such as 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 saving 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.

Basically, 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. If you are thirsty, you can buy the Diet Coke. The $2.50 will not be a big deal.

I can speak from experience—it is nice when you get there. But I was once forced to make those economic choices.

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Some People Don’t like Discomfort

Some people are never willing to 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 it was expected I would 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.

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Interestingly, 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—at a point in time where 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.

At the Same Time

You can’t spend your whole life in doomsday-prepping mode. I have some relatives who were prodigious savers all their lives, never allowing themselves any extravagance, and they are now 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, are you going to change the rules, to allow the 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.

What Happens After That

Only after you have established good saving habits should you start investing.

Which means that if you’re not a saver right now, then you should not join the hundreds of other 10th Man readers who subscribed to ETF 20/20 last week.

I’m serious about that!

But if you are a saver, and want in on an all-ETF portfolio that was pretty much the picture of serenity while stocks worldwide lost more than $5 trillion last month…

Then you should consider joining ETF 20/20 now for $4.08 a month.

It’s a discount of more than 50%, so it’s as far removed from spending like a sailor as you can get. Because it’s such a big discount though, this week’s issue is the last time I’ll offer it for a long while.

Finally, thank you to all of you who joined ETF 20/20 last week. Happy to have you on board.

Jared Dillian
Jared Dillian

 

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p.eisenkramer@gmail.com

Nov. 8, 12:53 p.m.

  Here’s how we did it a generation earlier:

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.

  Stop in at Burger King & ask for an ice water – optionally add lemon & sugar (if available)
  for free lemonade - Cheaper, healthier & no discomfort.

Basically, 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 a restaurant and sneak in food from home (or fill up at home) – then order the
  cheapest appetizer that you like - no 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 go to Goodwill & get the $10 running shoes - no discomfort if they fit.

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.

  You will buy a gently (if lucky) used car that is several years old rather than a new car.

My story is one of economic sacrifices. I lived far below my means during a time when it was expected I would 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.

  You could have bought suits from Goodwill – better quality & cheaper

I brought cans of Chef Boyardee to work for lunch.

  You could have made the equivalent from hamburger, tomato sauce, etc in bulk; then froze
  portions -  cheaper, healthier & better tasting

  Add to this: communal living for housing and stealth camping for vacations - cheaper, and
  without (much) discomfort.

Gordon Foreman

Nov. 1, 9:40 p.m.

My wife and I married in 1983 and kept a budget for the first few years. In part this was because we wanted to be on the same page with our spending, and in part because I was in graduate school getting a MS in Civil Engineering, and we didn’t have a lot of income. In particular, I remember that we both had cars, several years old, but in good condition, and most important of all, PAID FOR! We set a goal that in our married life we would never make a car payment. That is, we would save up and when we needed a new vehicle, we would only consider used models that we could afford to pay cash for. We put $250 a month into our “car” category, paid gas, insurance, and repairs out of it, but it still grew considerably most months. And now, after 35+ years of marriage, we have still never had a car payment.
We tended to treat other recurring expenses the same way - put aside a little more than we normally needed - and let a surplus accumulate. When I graduated and our first son was born, events that happened within weeks of each other, she elected to stay home. Her promise to me was that if I would earn a good income, she would be frugal and careful with her needs, and we lived that way all through my working career. We are blessed that money has never been a source of contention between us.
And our two sons are now self-supporting adults, and they are able to be frugal with the stuff that doesn’t hurt, while not being afraid to buy what they really need, or that is really important to them. We have concluded that a lot of fiscal care is not painful - it’s just avoiding those thoughtless expenses that really don’t serve anything. For example, one rule we had when our boys were small is that we don’t buy anything we see advertised on the TV. We did make exceptions from time to time, but only after a family discussion.
As for our budget, about a year or two after I graduated, we decided that we really didn’t need it any longer, and haven’t kept one since. But we agree that it was a great way to start our marriage, and contributed considerably to our happiness over the years.

mcain6925@gmail.com

Nov. 1, 12:33 p.m.

Not a budget, but after my wife and I went from “his money” and “her money” to “our money”, we wrote down every nickel we spent for a couple of months to see where things were going. I had a nasty book habit that I could satisfy just as well through the public library. She was upset when she found out how much she was spending on coffee (and slept much better after she cut her consumption in half). It’s especially helpful for someone in the situation we were in then—a couple of years out of graduate school and with real incomes for the first time in our lives.

edheslin@hotmail.com

Nov. 1, 10:36 a.m.

Stop this personal finance stuff - I don’t need your views on it. Get back to discussing investments.

neil.silver@sympatico.ca

Nov. 1, 10:20 a.m.

the first part about saving described me perfectly , now at 62 with a large pile of savings i am having a hard time with the spending part

Joe Matchette

Nov. 1, 9:46 a.m.

Many years ago a friend made the statement, “Those who do what others won’t will be able to do what others can’t.”

It resonated very strongly with me and my wife and I have followed it pretty well.  We are now in the latter category….

Joe


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