Who is the customer of your budget?
November 28, 2023 |Scott Kubie
Who is the customer of your budget? When you make your annual budget, who are you doing the work for?
I asked this question to twenty undergraduates in a personal finance course at a university. I got a mixture of blank stares, averted eyes, and pondering faces. I didn’t get much of an answer. The students aren’t alone. Intuit, which owns Turbo Tax, announced it is shutting down Mint, its personal budgeting application.
Can you imagine a worse advertising audience than people who are so thoughtful about their spending that they want to track it in detail?
Budgeting isn’t popular to begin with. Anti-budgeters don’t like to be told what they can spend money on. Budgeting applications can charge customers, but as one executive wryly noted, “Nobody wants to track an expense item for expense item tracking.” The other option is making the product free and selling ads. Can you imagine a worse advertising audience than people who are so thoughtful about their spending that they want to track it in detail?
I have paid for budgeting software since the nineties because it was better than my Excel model. Budgeting is very valuable. While it is too late to save Mint, I shared two customers of your budget with the students. As I’ve thought about it, I’ve added a third. The good news is that the primary customer is you.
Customer #1: The Whole-Year You
The first goal of a budget is for you to thoughtfully exercise some control of yourself in the moment. A well-planned budget identifies the year’s priorities and ensures that money is allocated to them. If paying down debt, staying at a nicer hotel on vacation, and giving more are significant objectives for next year, the Whole-Year You needs to exert some control over the You of the Moment. The problem is that Whole-Year You has some challenges. As Nobel Prize winner Daniel Kahneman observes, your more rational side is lazy, while your emotional side is fast. The emotional side has already spent the money before your rational side can get going. Jonathan Haidt compares your emotional side to an elephant and your more rational side to its rider. It takes significant training for a rider to get an elephant under control. Budgets are a tool to engage your rational self at critical moments to forge a plan that your quick-thinking self can follow.
Customer #2: The Future You
Budgets allow you to save and invest so your future you can have assets at the right time. We all know people who earn impressive salaries and spend everything they get. When something goes wrong, or the high income ends, they often end up in bankruptcy. Once you’ve completed your budget take action to ensure you save. If your company retirement offers a match on 401k contributions up to 6% of your salary, and you only contribute 4%, figure out how to get to 6% and then change your contribution amount immediately. Your future self will be grateful.
Customer #3: The Eternal You
Budgets make it easier to lay up treasure in heaven. (Matthew 6:20) Budgeting your income should start with identifying the percentage God calls you to give. The Bible emphasizes giving out of our first fruits. Without a budget, giving often comes from the leftovers. Much like the amount contributed to your retirement program for Earth, a budget allows you to allocate spending considering what you are called to give for the truly long term.
One final point: Budgeting can make a big difference to you. Don’t go overboard by laboring for weeks to create the perfect budget. One of my core financial principles is to be good or very good, not excellent at financial management. The benefit isn’t worth the extra effort. Pick categories that matter to you. You can have a great budget with giving, investing, required, and discretionary payments. Four categories can help you understand how you spend your money and keep your future self-joyful and thankful.
Scott Kubie, CFA