Working Wealthy – Goals Over Budgets

Does the term “budget” make your skin crawl? Or perhaps even worse—does it make you shut down?

While many people cringe at the thought of documenting their income sources and keeping track of all their expenses, financial planners are typically comfortable with the concept of budgeting. But in the context of financial planning, a budget can actually derail your progress.

Allow us to explain because it might not sound logical at first blush. Financial planners realize that setting and sticking to a budget is not pleasant. It might even be counterproductive in some cases.

For the most part, when someone hears that they need to set a budget, it typically means they have a set dollar amount they can spend per week, month or year. In a perfect world, that dollar amount stays consistent over time.

But we hardly live in a perfect world, and the practical application of a “perfect” budget quickly wilts in the glaring heat of expenses that come with everyday life.

So, if you’re not using a budget, how do you make sound financial decisions about cash flow and saving for the future? One answer is to take a goals-based approach.

Budgets can limit, while goals may set you free

Consider the following two statements:

  1. Your budget this month is $10,000. Do not spend more or you’ll be over your budget.
  2. If you set aside $35,000 this year for savings, you can spend whatever is left.

The first statement limits your spending, while the second gives you a goal and some freedom. Sure, this might seem like a game of semantics, but from an emotional or psychological standpoint, aiming for and then achieving a particular savings goal can make people feel much more “free” when spending, knowing that they’ve already saved what they set out to save. In contrast, the budgeter feels shackled to $10,000 per month, even if it’s a reasonable amount to spend. It all boils down to perspective.

Goals look forward, budgets look backward

Often, when somebody mentions creating a budget, they talk about how they’ll go back through and check their receipts for how they’re spending their money. It’s a nice idea, but it’s also based on the flawed premise that what has happened in the past will happen again in the future.

Spending is dynamic, timely and event-driven. Payments for orthodontia one month get replaced by a surprise car purchase the next month. And don’t forget that expenses are subject to inflation as well.

Looking back at your spending history can certainly help you understand patterns and where money is going. But focusing instead on setting a savings goal might give you more room to adjust and make decisions based on real-life circumstances you’re facing right now and down the road.

Save for the future, celebrate the journey

To some, a full life means being able to live in the moment and enjoy the fruits of their hard work along the way. It may be that budgeting is not the best way to experience this sort of life. It could seem too constraining, despite the good intentions. For many, it might be more effective to create goals that foster a sense of freedom, accomplishment and contentedness, allowing you to celebrate the journey and not just the destination.

Please keep in mind that this is just one point of view. It may not be one you share or that works for how you manage your own finances and cash flow. In the end, regardless of the terminology used, hopefully you’ll find the method that helps you live your best life. After all, whether you call it budgeting or goal setting, effectively managing your finances can help you achieve what’s most important to you.


Nick Cosky, CFP

Nick Cosky, CFP

Partner, Wealth Advisor

Nick is a Partner, Wealth Advisor in our Itasca, IL, office. In his role, Nick is primarily responsible for introducing prospective clients to the firm. Nick served as the head of legacy firm BDF’s Financial Planning Committee and has participated on the Business Owner Team. He is passionate about the goals-based planning that BDF does for its clients and enjoys focusing on the behavioral aspects of decision-making. Nick is a CFP® professional.


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