Chapter 15 – Do You Need A Budget?

“Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum. ~Suze Orman

To this point, we’ve discussed what I feel are the fixed costs: housing, food, and clothing. In the last chapter, we discussed saving at LEAST 10% of your paycheck. I consider the remaining expenses variable costs. You have control over these costs. You definitely need to track your remaining expenses, but do you need a budget? Let’s look at the difference between fixed and variable costs and then decide, if you personally, need a budget.


In terms of expenses, fixed costs are expenses that we must pay and have little influence over. We have influence of what kind of housing we choose, but shelter is a necessary fixed expense including your mortgage or rent, insurance, and the utilities that come with it. In the housing chapter, we discussed that all these costs should be 35% or less of your income. You also have a lot of control over your food and clothing expenses; however, you MUST eat and, at least in the American culture, you MUST wear clothes. Although I call those expenses fixed, people can find the most savings in these areas. I would also like to change our culture to believe that saving at least 10% of your income is a must too. The 10% can be considered fixed, but you can and should save more.


In my opinion, all your other expenses in life are variable costs. You can choose to have these expenses and choose what percentage of your income they will be. The most common are transportation, gas, entertainment, internet, and TV service. I’m a firm believer in tracking all your expenses. Knowing where your money is going at all times is the key to financial success. The closer you track your expenses, the more control you’ll experience. In this blogpost from the Simplified Motherhood blog, the author gives us 58 of the most common budgeting categories that can help you better track your expenses. The further you breakdown your expenses, the deeper you’ll have control. But the real question here is, do you need a budget?


For most people, I highly recommend a budget. The more detailed the budget, the better. You simply track all your expenses for 30 days and then create a budget. We discussed all the apps and methods for tracking your expenses in this chapter. Once you’ve tracked your expenses, create your budget. This may involve spending less on some expenses, so you can spend more on others. After a couple of months, revisit your budget. After nearly two decades of helping people with their personal finances, I’ve found that some people do not do well with budgets. Building a budget is as simple as listing your income to the left, and then list out your expenses to the right. You can see how much money is allocated to each expense and make adjustments as needed.

For some, budgets become stressful and feel like dieting. To lose weight, many people seek the newest diets, suffer for a couple of weeks, and then go back to their old ways. This creates a negative Pavlovian response to dieting and makes it increasingly difficult to attempt dieting in the future. I have found that people respond the same to budgeting. If you want to properly control your finances without a budget, you have to keep good track of your expenses. On her blog, I’m Poorer Than You, the author states simply, “I just track and plan.” She just tracks what she spends, plans out future expenses, and then knows what’s normal and what’s not normal. I’d argue that this is still a budget, she just has enough expenses to track it all in her head. Same with the author of Reaching for FI, who admits to not having a budget but “meticulously” tracks spending via an app called Personal Capital.

Some people are also worried about apps and software having access to all their personal finance data. Apps and software that track your expenses are considered aggregators. They aggregate all the accounts you give them access to and then they track your expenses, investments, and savings for you. Capital One and Chase both warn that they aren’t liable if your information is hacked while using a third-party software.[1] That being said, many of these apps are secured using the same methods as the banks that warn you about using them. The risk may zero sum, while the risk for some people of having not having a budget may be great.

Like the blog The Simple Dollar writes, “When you don’t have a budget, getting into debt is a piece of cake.” This is because we lose track of small expenses that add up quickly. One I’ve noticed in the military is snack bar expenses. A fifty-cent soda for lunch and a dollar candy bar in the afternoon. Then the next day, something for breakfast, lunch, and the afternoon. At the end of the month you’ve spent $30-$45. Increasing interest rates on credit cards is another thing people lose track of.

My emergency savings account bank is generous and lets me know when my savings account interest rates have been increased. They send an e-mail like this.

Financial Genome Project

Unfortunately for credit card holders, you don’t get the same message when your credit card interest rates rise. As the Federal Reserve increases interest rates, so do credit cards. Credit card interest rates rise quicker than savings account interest rates. Three years ago, the national average for credit card interest rates were 14.89%, a year ago they were 15.44%, and now they’re at 16.41%.[2] If you’re not tracking them closely, your minimum payments can keep increasing and you could be going further in debt. Maintaining a budget can help you keep track of all the moving pieces. The only problem I have with budgets is how people interpret fixed and variable costs.

I once helped a person that had a tight budget and put actual cash into individual envelopes. She would put $20 in her entertainment envelope and $20 in her dining out envelope every two weeks, among all her other expenses. The entertainment and dining out expenses became fixed costs for her. If at the end of the week she didn’t spend $20 on entertainment, she would go somewhere and blow it on something not value added. She could’ve saved that money or used it to pay down debt. Her budget busted when she had some car problems that were greater than her emergency savings account. She came to me when she was struggling week to week, barely making it to the next paycheck. I was happy to see a budget, but surprised that she “couldn’t find savings anywhere in her budget.” She felt that since she had a budget, those expenses were all fixed and couldn’t be reduced.

So, do you need a budget? It’s a personal choice. For most people, I highly recommend a budget. You can let the free apps I discussed in the tracking expenses chapter create and maintain your budget or develop your own. There are many free budgeting tools on the internet. If you choose not to create an actual budget, then make sure you’re keeping a keen eye on all your expenses. We won’t go into each expense here, but I plan to give the rest of the expenses their own chapters. For example, I’d like to explore transportation in its own chapter.