There’s probably nothing more common when it comes to financial advice than the idea that everyone should do a budget. But the truth is, most of us just don’t. In fact, a Gallup poll recently showed that only about one-third of Americans do a detailed monthly budget, and even among those making more than $75,000 per year, only about 45% do. My guess is that even less actually consistently follow that budget once it’s made.

Why is this? Is it because we don’t know how? Couldn’t be bothered with the effort?

Could it be that for most people creating a super-detailed budget is a huge waste of time?

Let me be clear here, because as a Certified Financial Planner professional, you might think I’m talking heresy. But the truth is that diving into a super-detailed budget isn’t the place to start when you decide to “take control of your finances.” Making a budget (or finding a budgeting system that works for you) is actually step three of the process…

  1. Step One – Define Your Goals
  2. Step Two – Taking Stock of Where You Are Currently
  3. Step Three – Finding a Budgeting/Cashflow System that Works

So, What is Budgeting?

Budgeting, strictly speaking, is not just tracking your expenses. You can do that easily (and free) with an online system such as, Personal Capital, or Wela.

Instead, budgeting is essentially a spending plan — it’s mapping out a plan ahead of time that describes where and how you want to spend your money, instead of letting daily life dictate it for you.

The process of budgeting can be helpful, of course, but only after you already know the answers to steps one and two. Just like a pilot, you can’t pick out the right route without already knowing where you want to go and where you are now.

Does Detailed Budgeting Matter?

Think about it like this — does it really matter whether you spend 9% on clothing and 14% on auto, for example? Personal finance “experts” often talk about some arbitrary recommended benchmark as if it’s a law of the universe somehow, like you should only spend 28% on housing… but that benchmark only makes sense in the context of your goals and situation.

Here’s an example: if you live in New York City, you’re are going to spend a heck of alot more on housing than someone who lives in the rural U.S., but you are also probably going to spend almost zero on auto expenses, because you won’t need to own a car. Is one way inherently right and the other wrong? Aren’t these spending categories, in and of themselves, entirely arbitrary at the end of the day?

Take the example of  NYC-resident and millionnaire JP Livingston, a 28-year-old who retired in 2016. She wasn’t born financially independent like the Trump kids, she got there by working hard, living frugally, and saving/investing smartly. Does she worry that her housing expenses are “above average” relative to her income? No, as she points out herself, what matters is that her total monthly spending won’t exhaust her savings. Who gives a flip what she spends on one category versus another?

Why it Matters

My concern, ultimately, is that people often get super motivated to do get their finances in order, and think that means diving a super-detailed budget, only to spend hours and hours micromanaging arbitrary categories to no real end. Eventually, they get frustrated with the process and give up.

Unfortunately, they never got to the part that actually matters, which is to be able to see the big picture of their cash-flow situation and make important decisions about how to improve it — important decisions like setting aside money for short, medium, and long-term goals, or making a plan to get out of debt and automatizing it.

What to Do Instead

So what does matter? Well, there are only three “categories” that matter when it comes to personal finance: income, expenses, and savings. The bottom line is that, to get ahead, you need a large delta between income and expenses.

When I have an annual review with a client, I am not interested in seeing their budget. It’s not really helpful to have the “bigger picture” discussion that we need to have. In the few minutes that we have together, we need to discuss their goals, review the numbers, and talk about whether or not they are on track to meet them. And if not, how we can fix it.

So what do we do if not a budget?

First, I create a very simple report that we call an “annual cash-flow summary.” It’s a big-picture viewpoint of the three things that really matter: income, expenses, and savings. This report rarely has more than ten line-items on it, and usually about 6-8. I only include things like income sources, taxes, savings/debt repayment, and total spending. Then we have a discussion about whether or not they can meet their goals given the current status quo, and if not, which areas to focus on.

Sometimes, we talk about increasing their income. Other times we need to reduce spending, find ways to cut taxes (an expense), or pay down debt. Either way, it all starts with that annual cash-flow report.


I’ll get more into the details of exactly how to do an annual cash-flow summary, and why it’s so important, in another post (hopefully just a few weeks, so stay tuned). But the good news is that it only takes about an hour (or less) to do once per year, and yet it is a much better place to start than a detailed monthly budget.

Until then, I recommend simply doing the following on a monthly basis: pay your bills (obviously), track your spending (automatically), and start with the simplicity of the anti-budget strategy. That way, you’re not spending hours and hours of your valuable time focused on arbitrary spending categories that don’t really matter.