This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
To some people, there is a reverence paid to budgets that I don’t really think is overly deserved. I was talking to my sister on the weekend, and she thought that a budget will solve all her problems. She said that all she needed to do was have a good budget and she would be in good shape. I politely disagreed around the importance of having a budget and explained to her that it wouldn’t necessarily help her financially because she doesn’t really have anything to budget for and doesn’t really have an end goal she is shooting for.
I explained to her that I didn’t really use a budget per se, I just pay all my bills put money into savings and spend the rest how I want. My “wants” are generally a lot less than most people, which may be the reason this system works for me. I also find that I don’t do well with the structure that a strict budget would impose on my spending.
The difference between me (I think) and most people who have no interest in their personal finances is that I have goals that I am hoping to achieve, which provides some direction and incentive for my personal finances. I have short-term goals, such as saving up enough money to feed my golfing habit for the summer, mid-range goals for things such as a vacation, and longer-term goals of paying off my mortgage.
Without these set goals, I would probably spend a lot more money than I already do on things I don’t need and I would lose all incentive for maintaining my financial plan. I think that this is the main problem that people without a financial plan have – without some kind of defined future goal, there is no reason to follow the carefully crafted budget that was designed to make them financially stable. Once the budget is abandoned, all sorts of things happen, mainly by the end of the month there is less money in the bank than bills in the mailbox – creating a situation that requires (usually) debt.
In the end, I explained to my sister that she should think about what she wanted financially – does she want a car? A nice apartment? A down payment for a house, or some other financial goal. Having a light at the end of the tunnel would allow her to maintain focus on her spending plan, which I see as a major stumbling block with most people’s budgeting aspirations.
Do you have short-range, mid-range or long-range financial plans? How do you maintain your focus on the plan you have set up?