The Lazy Way to Create a Budget That Works

January 14, 2011
Jeff Brown, MD

Budgeting is hard work, but there may be some unassayed ore in that slag heap. All of us would rather make smart financial decisions rather than the ones we too often make, and if we were given the data to know and better understand what it is that we are actually doing with our money we could be better off financially and emotionally more secure. Now that's an attractive combination.

Budgeting ... UGH!

Ugh is right. No one wants to do it in their personal financial life, because it connotes both motivation to start and on-going compulsivity to make it work -- a particularly unattractive combination. Most of us cite the lack of time and, tellingly, interest in budgeting. And, whether we do it or not, most would probably agree that a budget is essential for any business to function, let alone succeed.

The best number that I could find is that less than 1 in 10 physicians implement a personal budget. That said, it's the New Year, so time for a resolution that pays.

Budgeting is hard work, but there may be some unassayed ore in that slag heap. All of us would rather make smart financial decisions rather than the ones we too often make, and if we were given the data to know and better understand what it is that we are actually doing with our money we could be better off financially and emotionally more secure. Now that's an attractive combination.

The truth is, any budget is better than no budget. Why? All of us can benefit from some structure to order our thinking. A money methodology can open windows of understanding to improve our exchequer, just as we have a diagnostic methodology that allows us to successfully function in our profession as physicians.

At heart, the budget process tells us where we have been, where we are planning to go and how to get there -- sort of a summary of who we are financially. Many of us would find that our undocumented, off-the-cuff guestimations of where we spend the most are usually shockingly off the mark. That wastes a lot of money and only yields chagrin. Not our best look.

When creating a budget, the first thing to do is to figure out where the cash flow goes. This is typically where the need for itemized detail becomes a deal-breaker. You don't want to do it and neither do I. But that information is crucial to proceed. So here's an easier shortcut: Put every single expense I can, no matter how small, on a rewards credit card (with the caveat that you always pay the full balance off at the end of the month). Benefits include carrying little cash, fewer trips to get cash and accumulating miles/points/cash-back, which is like free money.

Case in point: I've been doing this a long time, and as a result I have achieved an advanced status airline card. This alone has made the process worthwhile, because even if I am flying economy, I get to cut through some of those long lines at the airport and I do not have to pay for my luggage to get aboard.

The budget benefit of this emphasis on using a credit card is that at the end of the year, at no charge, the company sends me a detailed print-out of everything I have spent over the whole year organized by category. If your card issuer does not break down purchases by category, any number of free online services, such as Mint.com, Bundle.com, or desktop software organizers like Intuit's Quicken, will break down your spending for you.

Once you have data in hand, this is where the shock part sets in. "I/we spent how much on what?!?" It's humbling and it tells you in a way that nothing else can "who you are." In combination with such things as my annual checking account review, which that I have to do for my CPA at tax time, I get a pretty complete picture of my spending habits.

There are many other budgeting methods, as well. I'm just telling you the lazy way that I have grudgingly acceded to the utility of creating a budget. How to change ingrained spending habits in order to improve your overall financial situation it is another tale for another campfire.

Most experts agree that if you track spending through products such as Quicken or Mint you'll be better off financially. But, again, that's the tough part. I recommend trying it now that we starting a new year and happy to find a resolution that pays. You will be happy that you did -- and it cannot make things worse. Happy New Year.