The Paleo Budget
I recently read a Time Magazine article which helps answer a question you may have asked yourself after discussing weight loss with friends. Chances are you’ve found that one person was able to lose weight by avoiding between meal snacks, another by eating smaller portions, a third, through regular exercise. The article goes into some detail describing why different diets work for different people. I’m no dietitian but the only “universal” rule of dieting I’ve observed is that the lifestyle patterns which caused the weight gain must change in order to sustain weight loss. I think that explains the rare long-term success of the paleo, grapefruit or any other of the similar fad diets that periodically sweep the country.
What does dieting have to do with financial planning? Perhaps more than you’d think. After twenty-five plus years in the world of investments and financial planning, I think the single most important aspect of any plan is the budget. Simply put, the best insurance or investment strategy in the world won’t provide a comfortable retirement if you spend more than you earn. How do you spend less in order to save more? Just like dieting, you have to change one or more habits. While change is never easy, getting to choose which habits to change seems to make long-term compliance more likely. As writer and speaker Peter Bregman says, “People don’t resist change, they resist being changed.” Jalene and I sometimes employ this principle when helping clients develop a budget to save for retirement or to live on in retirement. As we work through the process, we’re often asked, “What are the most important rules to live within your budget?” Rather than offering a one-size-fits-all answer, we share a concept we call practicing for retirement. Once regular income stops, retirees must live within their means. Starting earlier helps clients get a feel for what it’s going to be like – and allows additional saving in the meantime.
I know I’ve picked on fancy coffees before but you can substitute any of life’s non-necessities as I share this story. A friend of my wife’s found herself unexpectedly needing to make a significant adjustment to her budget. She loved stopping for one of those barista-prepared beverages and didn’t think she could give up that simple pleasure. Then she had an idea: she bought a Keurig (which actually comes with a supply of K cups) and shopped for flavored coffees, only purchasing them when on sale. Her coffee cost dropped from over $5 per cup to about 50¢, savings that helped her better manage her budget. In my experience, once someone figures out how to take that first step, a virtuous cycle develops and the pleasure of saving money while still enjoying a ‘simple pleasure’ leads to further savings. I wouldn’t be surprised to discover that she’s learned to make other budgetary changes as well. Coffee isn’t really the issue here, it’s just a simple target for this old-school guy who still drinks brewed Eight O’Clock at home and work. If a client’s choice was to replace spending on fantasy sports or weekly spa treatments with something less expensive, the budget would still be more in balance and I’d be satisfied. What I need to know from clients is not which habits they decide to change but that coffee (or any small luxury) is properly allowed-for within a balanced budget.
Many people do very well with a paper budget, or in this day and age, an app like Mint. It’s easy to prepare a list of expenses and track actual spending against it. For stubborn spending issues, here’s another approach. It’s probably been around forever but Jalene introduced me to the envelope system of budgeting about five years ago. It involves putting actual cash into envelopes earmarked for specific expenses, like groceries, gasoline and even coffee. Once an envelope’s empty, that’s all that can be spent in that category until it is refilled for the next week. My description might seem a bit dry, so here’s a one-minute video of Gene Hackman teasing Dustin Hoffman about a very similar concept.
In closing, let me return to Time Magazine where I read about a targeted cancer cure that involves training the body’s own immune system to destroy cancer cells. I can’t help but believe that this is how all diseases will be treated sometime in the future. Similarly, at least one company is prepared to study your DNA and tailor a diet specific to your own body’s needs. Here a link to an article about it in the Washington Post. We put a lot of effort into helping our clients achieve livable, personalized budgets but it’s obviously not practical for us to help everyone or even all those who read my newsletters. For those who aren’t clients or don’t feel they can afford to pay for a planner’s assistance, there are lots of places to find help – many at no charge. I just did a search for ‘personal budgeting’ and was rewarded with 49.4 million links available for your consideration.
Whether you go to the web, try the envelope system or call us or another planner, a balanced budget is vital to a successful financial plan. Please take a look at yours and see if adjustments are necessary. I’m pretty sure a future you will appreciate the effort.