Why Budgeting Sucks …….. and Why It’s Important

Years ago, I remember sitting with my wife and going through our bills. We were up to our ears in medical and credit card bills wondering “how the h@$! did we get in this mess”? We didn’t have a budget per se’ and we were hemorrhaging money at an unsustainable rate. We had a “come to Jesus” meeting where we had to be brutally honest with both ourselves and our situation.

We had to change our mindset if we were going to get out of this situation. We needed to treat our household like a business if we were going to survive. The first steps in the mindset change was to create a budget.

Why Budgeting Sucks

Budgeting Feels Restrictive – Budgets have a stigma of restricting options, limiting choices, and forcing personal sacrifices to be made.  When a person is used to behaving a certain way, budgets act like the teacher you hated in elementary school who constantly criticizes your poor habits and choices. “Stop buying those expensive clothes! Why do you need those concert tickets? Why can’t you save any money”? It can be frustrating to say the least.

Budgeting Feels Humbling – Budgets are a lot like golf. Golf is a game that no matter how important you think you are in the office; it can be a great equalizer when the mail room clerk is wiping the floor with you on the course! 😊.  Golf takes time to develop skills and good habits. It takes a lot of practice, dedication, and mechanical repeatability to hone your craft. It doesn’t matter how expensive your clubs are if you don’t know how to properly use them.

Budgets are the same way. It doesn’t matter how many expensive Vegas trips your credit cards bought you, the bill will eventually come due. IT ALWAYS DOES. When that bill comes and you don’t have the funds to pay for it, you feel foolish and embarrassed. One hand ….. it was fun! On the other, what did you REALLY gain? You wish you had the funds in your pocket instead of having to pay off the credit card (if you even had the funds to begin with!). You can use all the budgeting apps you want, if you do not have the right mindset it can be a humbling and embarrassing experience.

Budgets Are Hard To Stick To

The simple, cold, hard fact is that budgets are made using logic and reasoning. Purchases often are made using emotion and the need for instant gratification. There is an inherent conflict between the two.

It can be hard to stick to a budget when that new putter is calling your name and saying, “Buy Me, Buy Me”! It can really test your will and resolve.

People also tend to set goals that are not realistic and not attainable. They become frustrated at the progress being made and give up. It’s almost a self-fulfilling prophecy.

Budget = Not Good With Money

Worst of all, using a budget has a stigma that a person is not adept with money management. I hate to be harsh but let’s face it… that was what you were probably thinking.

For example, a friend of mine recently had to take a demotion to save his pension (3 years from retirement) which came with a $15K pay cut! This was a huge impact for his family. He talked to me feeling like a loser because he had to now live on a budget. He spent nearly 30 years without needing a budget and now had to “penny pinch”.

It’s hard to admit when a person is not good at something. It can be hard to admit failure and ask for help. I know. I grew up in a household where asking for help was looked down upon and shamed when you had the courage to do so. Asking for help was interpreted as a sign of weakness, not what it really is, a sign of courage and strength.

Why Budgets Are Important

Forces You To Treat Your Home Like a Business

Business owners understand their costs as well as profit margins. They know what makes them money and what saps their productivity. Business owners don’t spend money on just anything. When money is spent, it is intentional, purposeful, and deliberate.

It means properly classifying your expenses. It means eliminating your destructive expenses, optimizing lifestyle / protective expenses, and increasing productive expenses. To do this, it starts with creating a budget, understanding all expenses, and how much income is being made to cover them.

Get Control Over Your Money Not The Other Way Around

Before you can become wealthy, you must become disciplined. Budgets help with becoming disciplined. It enables you to take control of your financial life not let the financial life take control of you.

To take control of your money and your financial life, you must get organized. The most effective tool for this is a budget. Creating a budget can help you meet personal goals such as buying a house, buying a car, or taking a vacation. It also can help you prepare for emergencies and stay out of debt.

To take control of your financial life forces brutal honesty not only by you but your spouse as well.  To take proper action all expenses need to be known and a budget is great for this.

An example happened recently with my wife. Years ago, my wife took community college classes back when we were dating to eventually become a physician’s assistant (PA). During our “coming to Jesus” meeting a few years back, we did some student loan rectification to lower our payments, free up cashflow, and expedite loan payoff. When we did the consolidation, I asked her if we had all her student loans now addressed. Hew answer was “yes”.

Recently, I found out that the answer was really “no”. Needless to say, I was not pleased…. at all. It turns out that technically, when we had that initial conversation, she was taking classes at a community college. These student loans were never added in when the original rectification occurred, and she had totally forgotten about them.

This forced us to become brutally honest with each other not only about student loan debt but drove a deeper discussion and 2nd investigation into our financial recovery plan. Luckily, this was the only outstanding item left to right size our finances and the bleeding now has stopped (Whew!).

Enables Holistic Thinking

A good budget has a holistic view of all expenses the family has. How to fund emergencies, pay for vacations, fund your kids’ college education, and save for retirement all come from the same pot of money. A holistic view is needed to manage all these priorities and not only figure out where your money is currently going but where it is going to be spent in the future.

By thinking holistically when creating budgets, it enables the setting of priorities and realistic goals. Budgeting helps you to determine what is REALLY important to you as well as develop a plan how to get there. Developing a plan to right size finances enables financial bleeding to stop, the creation of positive financial habits, and the overall reduction in stress. These habits will eventually eliminate the need for a formal budget since it will literally be automatic for you. The question you may now have is “How do I Start a Budget”?

How to Do It

Start With Expenses First

To get started on a holistic budget, you’ll need to first list out all your expenses and your income.  Make sure to list not only the automatic expenses that come every month but also the variable expenses that happen intermittently such as the water bill, auto insurance, etc. For the intermittent expenses, average out the expenses as best as you can to a monthly cost. If needed, add margin of safety to the expenses to protect against underestimating the impacts.

Next, use the 4 types of expenses we discussed in a previous article and categorize each expense accordingly. A budget should be customized for each person’s individual needs and the categorization process will enable this to occur.

Once all expenses are categorized, prioritize the reduction of destructive expenses 1st. Use the Cash Flow Index (CFI) to force rank the destructive expenses first and setup a payoff schedule.

Once force ranking of destructive expenses is done, look for all other loans, mortgages, etc. that were listed in other categories and force rank using CFI. You payoff schedule is now complete.

Optimize Cashflow

Now that all current income streams have been listed on a monthly basis, it’s time to optimize cashflow.

Cashflow optimization is accomplished by looking for “leaks” in the bills you currently pay and plugging these leaks to free up cash to be used to start the payoff process.

First, look at tax withholdings. Typically, people receive a tax refund from the government every tax season. Most people don’t realize that what is happening is that the government is receiving an interest-free loan from taxpayers. Think about it.  The taxes they received could be used by the government for a short-term investment that makes them money while you receive no benefit from this.

I am not saying that you shouldn’t pay your fair share of taxes. I am saying that people tend to overpay taxes. Wouldn’t that money be better served to you on a monthly basis to pay down your expenses?

I discovered this strategy a few years back and adjusting my withholdings has put several hundred dollars back into my pocket each month that I have used to pay down destructive expenses.  While I still receive a slight refund back from the government each tax season, it is paltry compared to what I used to get. It’s been a financial boon for me, and I highly recommend checking this out.

Next, have an independent accountant check your last 3 years of income tax statements to see if there were any deductions that may have been missed. Depending on your financial assets (rental property, businesses, etc.), this has the potential to find hundreds if not thousands of dollars of missed deductions.

Another method is to look at eliminating all non-value-added expenses. This could be anything from the Audible account you forgot you had to the gym membership you haven’t used in a year.  Eliminate anything that is not providing value to your life and use the funds to pay down destructive expenses.

Also check the rates and coverages on all your insurance policies. Do you have the right level of coverage, benefits, and deductibles? Are there duplicate coverages that could be eliminated? Can you consolidate policies to get a multi-policy discount? People tend to buy too much coverage as well as duplicate coverage. I am a huge proponent of ensuring adequate insurance policy coverage since this provides peace of mind, a safety net, and can unlock a person’s potential to maximize production. What I am warning against is buying duplicate coverage and not taking advantage of multi-policy discounts to save money.

Another method to save money on insurance policies is to raise your deductible. If you have a sufficient 6-month emergency fund, increasing your deductible can save a lot of money. If an accident were to occur, your emergency fund could cover the deductible (that’s why you have it… for emergencies! Lol 😊).

A review of my policies not only allowed me to consolidate policies because of duplicate coverage, it also enabled me to purchase an umbrella policy to offset any potential holes I had in coverage (relatively inexpensive to get). Taking advantage of multi-policy discounts enabled me to save literally hundreds of dollars a year. Valuable money for attacking destructive expenses.

Next, check the rates on your mortgages (both personal and rental properties), auto loans, and any other personal loans. Let the CFI guide you to confirm if the loans are inefficient. A rule of thumb from Garret Gunderson and the Wealth Factory team is if the CFI number is 100 or more, the loan is efficient and keep doing what you are doing by paying the minimum. If the loan is 50 or less, the loan is inefficient and should be paid off as quickly as possible. If the loan is between 51-100, it is a potential candidate for a loan refinance or loan restructure.

This is the sweet spot. By restructuring these loans, potentially hundreds of dollars a month could be freed up to pay down those inefficient loans.

Finally, check out cash flow banking. It is a way to expedite the pay down process while providing necessary coverage for your family, the purchasing of an asset, and providing a steady income stream in retirement that is tax-free! Yes, I said it, tax-free! 😊 We’ll cover this topic more in a future article, my experiences using it, and how this could be a vital tool to add to your financial toolbox.

Now that all your loans and expenses have been classified, money leaks have been identified and plugged, it is time to start the paydown process. Use the money from plugging leaks to payoff expenses, build equity, and generate extra income. Put the extra money toward paying off the Lowest CFI destructive expense first. Then use this money plus the money freed up towards the next lowest CFI expense until paid off. Rinse and repeat until all debts paid off!

Just think, all of this was started by creating a budget. The budget enabled understanding of what is truly important to you, it identified leaks that were plugged to free up cash, and it enacted the long-term pay down plan. I know it was a lot of work, but trust me, it is well worth it. I followed this same strategy and now it is a habit that I check yearly and only takes a few minutes to do so.

Tools to Use

There are tools that can be used to make life easier. First, there are a host of apps (Mint, Personal Capital, EveryDollar, Betterment, etc.) that can be used to track spending, view available cash, and even help with investing. These apps can be used to automate the expense tracking and cash management process. I also use some of these apps as a double-check and each has their own pro’s and con’s. We’ll discuss this in more detail in a future article…….

However, these apps do not automate the Cash Flow Index (CFI) analysis and IMO may not necessarily holistic enough to manage and personalize your budget the way we discussed. If you’re looking to enact the process we discussed, I have a created a free tool that can be customized to suit your particular needs. It includes categorizing expenses by the 4 types we discussed as well as can automatically calculate the CFI for each expense. I even included filtering functions that can be used to isolate expenses and allows you to focus your attack plan.

Do I Automate or Pay in Cash?

A question that came up during my journey was whether to automate expenses, to follow a cash budget, or to use a hybrid approach. What needs to be understood and considered is the pro’s and con’s for each and how it fits your personality.

Automating expenses can be good for those disciplined enough, like to track their expenses, and are good at monitoring status electronically. It’s set and forgotten about. You can check it at any time of the day to find your status and if you’re on track. For those with a busy lifestyle, this is a hassle-free way to manage your money.

Others need to touch and feel the cash. They need to know the instant they have the urge to buy something if they can afford it as well as the consequences of buying it to the overall budget. Having a cash budget also can help with rolling money over to the next moth for a big purchase. Automating rollover money can sometimes get lost in the tracking of the budget. Having cash on hand, the person knows exactly how much they have at that time and can physically store it for a rainy day.

How do I do it? My wife and I use a hybrid approach. I automate expense payments as much as I can and pay the remainder manually. My wife is not successful working this way. She has to touch and feel the physical money in her hand. She must know what she has at any point in time and its consequences to the budget. We found what works best for us is to split the budget up into 2 parts. My wife owns the food / medical / gift / allowance / date night portion of the budget which I give to her in cash at every paycheck. I manage the rest of the budget either by automation or pay via checks. Since we enacted this approach, our cash optimization has improved exponentially and has reduced our overall stress tremendously.

The point is to find a system that works best for you and to stick to it. It may involve some trial and error, and it may involve making a few mistakes along the way. That is ok. It’s part of the journey. The key is to take action and to figure out what works best for YOU.


If you are up to your ears in debt, bleeding cash, and don’t know what to do, the 1st thing that is needed is to create a budget. It is a necessary evil to achieve your goals and fix the situation you’re in. Over time, good habits will form and eventually a budget will no longer be a necessity.

A budget doesn’t restrict but rather provides clarity & focus on priority setting and decision making. As what is important to you is determined, choices will need to be made. Everyone has their owns wants, needs, and decisions to make. Ensure the budget created reflects individuals’ preferences as the plan is enacted. Use the methods discussed to find and plug money leaks and free up cash flow. Then apply the extra funds to paying down those destructive expenses and to expedite your journey towards financial independence.

Good luck on your personal journey and send me any thoughts or comments you have. I would love to hear from you.

Live the Life You Want, Love, and Deserve! 😊