Kiplinger’s Personal Finance: Family finances: Why you may not need a budget – Richmond Times-Dispatch

Some people have detailed budgets that track every expense. But if you have stable income and predictable annual expenses, a spending plan may be a more effective way to manage your money.

The problem with budgets is that they look backward, says Matt Goren, a certified financial planner and professor at the American College of Financial Services who focuses on psychology and personal finance.

A spending plan, on the other hand, is a forward-looking exercise. Rather than asking yourself how much you spent, Goren says, a spending plan helps you think about where you want your money to go and what you want your money to accomplish.

With some notable exceptions, instead of making a detailed budget, you’re better off creating a plan that focuses on your major fixed expenses, such as housing and transportation. That will help you consider ways to trim some of these expenses so you can save more for retirement or other long-term goals.

Even if you’re an incredibly efficient and successful budgeter, the potential upside of your efforts is relatively small compared with the payoff you’ll get from boosting your income and investing for retirement. It’s not a question of “to budget or not to budget” as much as it’s a question of how you want to allocate your time, Goren says. “You’re far better off networking, updating your résumé, building new skills or making a spending plan.”

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Not everyone should forgo budgeting altogether. If you live paycheck to paycheck, as is the case with nearly 60% of millennials, a budget will help you live within your means. Otherwise, you could find yourself unprepared for emergency expenses, which could force you to take on high-interest credit card debt to pay the bills.

Budgeting also makes sense during times of transition, such as moving to a new place, getting married, starting a new job or having a child. Your expenses will likely increase, and a budget will help you plan and prepare for those higher costs.

Budgeting will also help you manage an increase in income, such as a substantial raise or a higher-paying new job. Although you may be tempted to buy some big-ticket items, your take-home pay won’t increase immediately, and taxes could consume more of your paycheck than you expected.

Tracking your expenses will help you get a handle on how much you really have to spend. But once you have stable income and predictable expenses, focusing on spending minutiae can be stressful and harmful to your well-being.

Although a detailed record of every expense may sound appealing in theory, if you find yourself sacrificing things like building …….


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