Why Some Experts Say Budgeting Doesn’t Help You Build Wealth. Have You Fallen into the Budgeting Trap? – Entrepreneur
Eighty percent of Americans (in a survey of more than 1,000 individuals) say that they have a budget, according to Debt.com. According to the site, it’s the highest number of respondents who have claimed a budget compared to the past four years.
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But let’s be honest. Have you ever actually met people who have budgeted their way to millions?
Probably not. It’s more likely that they invested rigorously, bought investment properties or started a business.
So why the uptick in budgeting? Why do Americans enjoy budgeting? (Isn’t it kind of like dieting?)
Let’s go over the reasons why budgeting alone doesn’t actually help you build wealth, according to some experts.
Reason 1: Budgeting is not investing.
Budgeting is not investing — it’s all about minding your pennies. You might think this statement seems strange or obvious, but it deserves some consideration. Instead of investing immediately, budgeting puts a priority on setting aside portions of money to pay bills and not overspending. In and of itself, you don’t generate cash for yourself when you budget. Putting a priority on budgeting actually sidetracks you from exploring solid ways to expand your wealth.
Reason 2: Investing before budgeting may make more sense.
Instead of budgeting to invest, why not invest first? It may help you build wealth more quickly.
Here’s a common scenario:
- You bring in a specific amount of income each month.
- You put all the money where it’s supposed to “go” — you know, in those “envelopes” designated for specific savings.
- Then, you find out that your car needs new tires or you realize you need to replace your HVAC system.
- All great intentions of budgeting during the month go out the window because you find out you don’t have “extra” money to invest.
When you invest before you budget, or when you pay yourself first (we’ll discuss this tactic below), you put investing at the forefront and spend your time focused on that.
Reason 3: Budgets often put investing as a last priority.
Unfortunately, budgeting sometimes causes investing to show up last on the priority list and puts paying bills first. When you fall short of your budget, it might lead you to think that you can’t invest. You might believe you must take on a part-time job, spend less or choose a different job. The reality is that you might have more than you think if you reverse your priorities.