George Kamel - Why "Finance Experts" Keep Saying Budgets Don't Work

Episode Date: September 20, 2024

💵 Start your free budget today. Download the EveryDollar app!  There’s a word for people who think budgeting doesn’t work—and that word is “wrong.” But in this video, we’ll hear what some of those people have to say about budgeting and set the record straight on why you need a budget.  Next Steps:   🎥 Watch my video "Budgeting for Beginners: The Only Budgeting Method You Need to Worry About!"   📗 Order George Kamel’s new book, Breaking Free From Broke.   Connect With Our Sponsors:  This episode is sponsored by DeleteMe. 🔒 Remove your personal information from the web at https://joindeleteme.com/george and use code GEORGE for 20% off. 🙌     This episode is also sponsored by Laurel Road. 💸 Open a high-yield savings account and make your savings work harder for you. Check it out here: https://www.laurelroad.com/george  This episode is also sponsored by Tello, a mobile service plan designed to save you money. Go to https://www.tello.com/george for $5 off your first month of Tello’s unlimited data plan.  Explore More From Ramsey Network:  🎙️ The Ramsey Show    🍸 Smart Money Happy Hour  💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  💡 The Rachel Cruze Show  💼 The Ken Coleman Show  📈 The EntreLeadership Podcast    Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Some people say gum takes seven years to digest. Gross. Some people say humans swallow an average of eight spiders a year while sleeping. Disgusting. And some people say, budgets don't work. And in each case, some people choose to believe what's wrong, despite common sense, math, and the fact that nobody has ever conducted a sleep study that tracks spider consumption. And today, I'll be taking a look at a bunch of videos disavowing budgeting,

and I'll tell you why these financial influencers are off their rockers. But first, hit those like and subscribe buttons, and shared this with someone you know who thinks there's still at least two pieces of devil bubble in their small intestine. Also, I've swallowed every piece of gum that I've chewed for the past 25 years. I don't know. Okay. First video. I want to tell you what I find in my own personal experience, the issue with budgeting.

Let's say, for example, number one, you have a $400 budget for groceries. Let's say one month you find some fabulous deals you want to stock up on, but you say, I can't go over my grocery budget, and so you don't end up taking advantage of some really fabulous deals. Or, on the other hand, you end up spending $400 when you really didn't need to. Okay, first of all, I just love this woman. I love the mom energy, and I guarantee she makes a mean meatloaf. And a lot of her advice is great, but here's why I disagree with this. One of the best things about a budget is that it's flexible.

So if you're at the grocery store, you're at Kroger, you see a great deal on a case of pickled herring, you can just lower a different spending category and raise your grocery spend for that month. It's your budget. You can do what you want with it. And just because you have a $400 budget doesn't mean you have to spend $400. If you can spend $300,

you can use that extra margin that you created to throw at your next financial goal. Maybe it's paying off debt or saving up an emergency fund. So let's not throw the budget out with the baby water. Think that's how the saying goes. Not even close. And by the way, this is Sensible Living with Money Mom on YouTube.

Her name is Don. And Don, if you're watching, I love your Halloween snow globe so much I got one for my own set. Hashtag twinning. And yes, it's staying up all year long. In Dawn's house, she makes the rules. So that's really positive news. On to the next budget hater aid video.

Utility of using budgets for the vast majority of people, I get a lot of personal finance nerds coming out of the woodwork. Rameek, that's really offensive. I love my budget. I have plugged in and built the most beautiful model. I plug in my numbers. It actually doesn't take me much time at all. Every single month, it's actually quite therapeutic.

I don't know what your problem. Why are you trying to misguide people? Listen up, you nerds. I know a lot of you. You spend more of your time creating subcategorizations than you do actually living your rich life. Should it be food or should it break down by groceries and delivery? Delivery or postmates and Uber eats.

Nobody gives it. Okay? It would be better if you were to create 10 categories, plug the numbers in, and then get on with your life. And so for so many people, it's tempting to sit and tweak things. It's almost like rearranging every single, bit of your desk instead of realizing you could just do it okay enough job and then get on with

your life. Budgets are a trap. Focus on automation instead. Wow. Listen up, nerds. Automate your budget because that's not nerdy at all. All right. That's Ramit Sedi. And truthfully, Ramit and I probably agree on 90% when it comes to finance, but this is one area we don't agree on. And listen, he just said create 10 categories, plug the numbers in and then get on with your life. Well, guess what? That's kind of like budgeting. He's got a. They're a big guy. What he seems to be criticizing here is people spending way too much time budgeting and getting way too nerdy and way too in the weeds.

No matter what you're doing, if you're paying attention to every dollar and you're tracking your expenses, that's a budget. You can call it by any other name, Rameet. All right, on to the next video. Don't budget because budgeting doesn't work. If it worked, everybody would do it and everybody would start them and everybody would stick to them. I've spent 26 years in the financial service industry.

My first nine years were at Morgan Stanley and what I saw first hand. In nine years, I only had one client write a check discipline-wise from budgeting for six months or more. All my clients that really saved money, it was all automated. So the message of budgeting is instead of budgeting, you need to save automatically for whatever you're saving for an emergency account. You save automatically. Money gets moved automatically into an emergency account. You're going to save for retirement. It gets moved automatically into a retirement account.

Okay. This guy's conflating a bunch of different things. budgeting is not the same as saving. And you'd think after nine years at Morgan Stanley, this guy would get this, which I could brag that I worked at Urban Outfitters, but I choose not to do that. So quit it with the name dropping my guy.

Now, I do both things. I like to automate my savings, but I also have to pay attention to every other area I'm spending on in my life, whether that's my bills, my subscriptions, insurance, groceries, you name it. You have to pay attention. So just automating your saving is not enough.

You've got to do more than that. Moving on. Budgeting is like eating celery at a pizza party, right? It's no fun. It feels restricting. It's a scarcity way of looking at things. Like, I'm budgeting out my money. Now, that doesn't mean I don't think it's important to know where your money's going.

What I recommend instead is a values-based spending plan. And part of a values-based spending plan is after you know where your money's being spent to make a decision if you're spending it on A priorities, B priorities, or C priorities based on what you value. Not just assuming because it's a fixed expense, something you have to pay for every month, that it has to be there. Okay. Thanks for the TED Talk, Ellen, and I hate to break it to you. What you just described accidentally was a budget. Here we go again. See, when you create a budget, you see where your money's going.

If you don't like where it's going, you can change it. You can cut expenses. You can sell the house. You can do what you want. But that's the same exact thing. A budget by any other name would smell as sweet. Is that Shakespeare? I don't understand why everyone's saying budgets suck, but do another thing that's exactly like budgeting, and just don't call it that and you'll feel better about yourself. Next on the list of budget haters. Contrary to popular belief, I don't think budgets work, and here's why.

I guess a key telling point is studies have shown people find it hard to sustainably maintain personal budget. The other reason is one size-feet-tled approach, which is forward-looking and can be difficult for people that have a consistent varying income and expenses. So when faced with such scenarios, people find it hard to stick to a budget. The bottom line is that there's always an exception to the rule. Financial management is there to create freedom. Have a system in place that is not restrictive and prioritizes paying yourself first. If you believe this guy, you're going to say, well, I guess I'm the exception of the rule, budget, and it doesn't work for me.

my income varies. And what he's saying here is, well, it's unsustainable. Well, guess what? For a lot of people, working out is an unsustainable habit until it becomes a sustainable habit. That is called discipline. And for those of you thinking, well, this guy's right, I got a regular income.

I can't budget. You need to budget more than anyone. And there's a way to budget that isn't that difficult when it comes to varying or irregular or commission income. And what you do is create a prioritized spending plan. So take the lowest income you think you'd make and say, all right, if that comes in, I got to cover at least my first.

four walls, food, shelter, utilities, transportation. If more money ends up coming in, we can cover the next set of priorities and the next set, so on and so forth. And that makes it really easy to budget with varying income levels. But you don't get a pass just because your income's not the same every month. Now before we get to the next video, claiming budgets are stupid, let's talk about something we can all agree is a smart money move. And I'm talking about a high-yield savings account like the one offered by Laurel Road, one of the sponsors of today's episode. If you're stacking cash for a vacation or a down payment on a house or a sweet Halloween Snow Globe that's considerably overpriced because it's discontinued, it just makes sense to put

that money somewhere it can work for you. And with Laurel Rhodes, HYSA, your account balance earns 5% APY right now. Plus, no minimum balance required to open an account, your deposits are FDIC insured, and there's no hidden fees. Learn more by going to Laurelroad.com slash George or click the link in the description. Another smart money move, saving on your cell phone plan with Tello. They've got crazy affordable plans and killer nationwide coverage. Their unlimited everything plan is just 25 bucks a month, which should free up some room in your budget for even more snow globes. I mean, why not one for every holiday? An Arbor Day snow globe? You know Don's here for it. And with Tello, there's no contracts, no sneaky fees, and you can change your plan whenever you want. Go to telo.com

slash George and get an extra five bucks off the unlimited data plan during your first month of service. Or just use the link in today's episode description below. That's tello.com slash George. Back to the budget bashers. Budgets suck. They just do not work. Have you ever tried budgeting? You know, you set a limit on how much you're willing to spend on something like eating out or entertainment just to realize later that month that you were justifying why you were exceeding your budgeted amount. Instead, just do this. Track your spending. Two things will happen. First of all, you'll naturally spend money because you're tracking it.

And second, you'll determine how you're spending your money and you'll be able to assess whether it was worth it or not. And you'll be able to figure out where you might be able to cut your spending. All right. That one hurt my brain a little bit. Tracking your spending is like spending all you can on a credit card and then just looking at the statement and go, look, I tracked it. I spent money. So you have to make a plan first and then track it to know that you're making progress. Because look, dude, if you're not sticking to your budget, it's not your budget's fault. Saying budgets suck because you can't do it. It's like saying working out sucks because it's hard.

Yeah, discipline is difficult. Sticking to a diet is difficult. It's not the diet's fault. It's the person in the mirror. The diet is just a plan and you're responsible for doing it. The key here is to set. realistic goals and create sustainable habits. We're not doing some kind of 75 hard Hail Mary financial plan here. The same goes with your money. Your budget's the plan, but it's up to you to stick to that plan. So yes, tracking your spending is a good thing to do, but only after you've created a monthly budget where you told every dollar where to go, so you don't wait till the end of the month to find out where it went. On to the next one. Sarah and I have this belief that budgeting is kind of silly. It doesn't really make a lot of sense. If you think about it from month to month, everything

in your life is typically fluctuating. You have different events that come up, different things that you are doing every single month, and so a budget can be time-consuming. It feels restrictive like a diet, and it's not practical to count everything that you are spending in different categories. Life takes over, and it may work for a short period of time, but we found it's not really sustainable. So instead of a budget, we use a spending plan. It's taking you from the mindset of feeling restriction to one of that is more abundant. Okay. And so when we're talking about spending plan, we're going through your entire cash flow and looking at what's coming in, what's going out, how much you should be putting towards your non-negotiable expenses, how much you should be putting towards your safe. paying down debt if you have debt, and then we give you an amount per month to spend. You can spend it on whatever you want, whatever sings to you, whatever you feel is really important

that month, but you have to make that amount work. So it puts you in this perspective of what do I want more? This or that. This is giving Minnesota Miss Rachel lives, and I'm here for that. Truthfully, I think it's wonderful. It makes me want to eat some Tater Todd hot dish. But once again, we have someone saying that budgets are dumb. Here's what you should do instead.

And then they begin to describe a budget, which is, what is my income? What are my expenses? What do I plan to do so that I can hit a financial goal? So call it whatever you want, Ms. Rachel, a budget, a spending plan, a dollar diet, as long as you're doing it. That's what's important. And look, I know from experience, budgeting works. And I know a lot of people get turned off by the word budget because they think of it as restricting their spending and it's holding them back. but a budget actually gives you freedom to spend.

You ever hear jocco say discipline equals freedom? That is a budget. If you want to win with money, you have to be intentional, and a budget is the way you do that tactically month after month. In fact, according to Tom Stanley's book, The Millionaire Next Door, most millionaires actually do a budget. And that makes complete sense to me, because being intentional with your money month after month,

year after year, is one of the keys to building wealth. And like many people, I used to think budgeting was reserved for broke people and excel-loving accountants. Turns out, I was broke until I started doing a monthly budget. It was the major key that helped me go from broke to millionaire in 10 years. And to this day, a budget helps me spend, save, and give with intentionality and freedom. And if you want to the app that I use to budget, it's called Every Dollar, and it is freaking amazing. It's a free download, and it's super easy and intuitive to use, and I will drop a link below so you can check it out for yourself, or you can go to every dollar.com slash George.

So use the link, download the app, and then check out this video to see how to create an every dollar budget from scratch. or click the link in the description. Thanks for watching. We'll see you next time.