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Disadvantages of Budgeting
Budgeting Is Like Dieting
Budgeting is like dieting. It works very well for self-disciplined people who are organized and committed to getting their financial houses in order. But it doesn't work so well for many of us.
Budgets Require Too Much Overhead
Like dieting, successful budgeting requires significant overhead.
To be successful, a dieter must create a plan to lose weight, implement the plan by selecting and preparing an appropriate menu and serving sizes, track progress using periodic weigh-ins, and adjust the plan as necessary. All of these steps require time and effort.
Similarly, to be successful, a budgeter must create a financial plan including spending and income categories, make daily purchasing decisions to implement the plan, track progress by periodically monitoring financial statements, and adjust the plan as needed. As with dieting, all of these steps require time and effort.
Unfortunately, the steps required to be a successful budgeter increase the chance of failure. While many well-intentioned people are capable of creating a good financial plan, they might not follow through on implementing it when it comes to making daily purchasing decisions. For example, they might create a plan that doesn't include any trips to Starbucks, but then find themselves stopping at Starbucks each morning to purchase a $4 latte to satisfy their caffeine addiction.
Thus, for many people, budgeting requires too much overhead.
Budgets are Susceptible to Binging
As with diets, binging can blow a hole in even the best thought-out budgets.
One problem with diets is that they are based on constant self-denial. With human nature being what it is, that self-denial often breaks down during weak moments, resulting in binging that blows a hole in the diet. For example, after sticking to a diet all weekend long, a dieter might lose control by binging on a slab of chocolate cake on Sunday night due to the stress of the next day's work.
Budgets are also based on constant self-denial which can break down during weak moments. For example, many people following strict budgets are overwhelmed by the urge to plunk down $500 on the latest Apple gizmo at the mall, or by the urge to buy rounds of drinks for all of their friends. These momentary lapses of financial control can easily break the monthly budget.
Thus, another problem with budgeting is that it is susceptible to binging.
Budgeting Takes Too Long
Budgeting, like dieting, often takes too long to be effective.
Many people make New Year's resolutions to lose weight. Unfortunately, many of these people get discouraged when they find themselves not losing weight quickly, and they forget their resolutions.
Similarly, many people have good intentions when they initially decide to budget, but become discouraged when they see how long it takes to see an impact. For example, it often takes months of tracking spending and income just to get an accurate financial picture. By then, many people will have lost interest in the budgeting process.
So another disadvantage with budgeting is that it takes too long.
How to Manage Unusual Events and Emergencies in a Budget
Neither dieting nor budgeting handles unusual events and emergencies well.
Its relatively easy to create a dieting plan that works well on typical days. But many of these plans fall apart during unusual events and emergencies. For example, many diets that work great during October end up falling apart during the Holiday festivities during December. For another example, many diets get blown by the need to eat multiple-course restaurant meals during business trips.
Similarly, it is difficult to craft a budget that handles unusual events and emergencies well. What about the $800 repair bill to fix the transmission? Or the $7000 needed for a new roof? Its difficult to craft a budget that includes a realistic dollar amount to handle these unusual expenses.
Thus, the costs of unusual events and emergencies are the downfall of many budgets.
Budgeting Results in Missed Opportunities
Diets and budgets are both too inflexible to take advantage of opportunities.
People sticking to a strict diet miss opportunities to partake in delicious or cheap foods and drinks. For example, strict dieters need to turn down free samples at the grocery store, need to pass on the chocolate cake dessert during business lunches, and need to avoid eating the chicken wings ordered by their friends at the bar.
Similarly, people sticking to a strict financial budget often find themselves missing opportunities. For example, they might not be able to stock up on paper goods when they go on sale at Target, might not be able to enjoy cheap plane tickets to Disneyland, and might not be able to start a new business due to its start-up costs.
By following a strict budget, people can miss out on opportunities.
For helpful information about becoming wealthy by paying yourself first:
What's the Alternative to Budgeting?
If budgeting has so many disadvantages, what's the alternative?
Whenever possible, automatic your financial life. Use direct deposit for your paycheck to keep physical dollars out of your wallet. Automatically fund your 401K account using payroll deductions. Set up an automatic savings plan to periodically transfer money into your savings account.
Pay yourself first. Rather than living a life of constant financial self-denial, take control by transferring money into savings and investment accounts each time you get paid.
Increase your financial literacy. Rather than spending time researching the latest iPhone, spend your time learning about personal finance. Unless you understand your investments, you won't want to invest your hard-earned money in them. And if you avoid thinking about the latest iPhone, you won't be hit by the urge to buy one.