I really hate the word “budget.”
Of course, like so many things in life, my aversion to the word budget has more to do with my own personal baggage, then any real problem with the word itself.
In the case of the word budget, my personal finance baggage is quite heavy.
When I’m talking about how I manage my money, I prefer to use the phrase “spending plan.”
It seems, I think, to convey a better sense of control and purpose. I know that a spending plan is, really, just another budgeting technique, but I feel better about it anyway.
Budget = Restrictions
One of the biggest issues I have with the concept of budgets is the restriction factor. I know that, as a personal finance blogger, I’m supposed to be ok with cutting back, but I really don’t like the idea of enforced restrictions on my spending — even when I’m the one creating the restrictions with a budget. My personal money style is that of a spender, and a budget cramps my style.
To me, budgets are about limitations. With a budget, I try to set a limit on different categories of spending. Once I hit that limit, I’m supposed to be done. There’s no spontaneity. Unless, of course, I budget that in, too. But it seems kind of pointless to budget in what’s supposed to be fun, spontaneous spending.
After a while, the budget starts to chafe, you feel restricted, and you start to feel a little bit harried, forced to count every penny — and possibly pinch each penny as well. It’s exhausting, and, in my case, it sucks the joy right out of spending money.
Spending Plan: Flexibility after Meeting Funding Priorities
Instead, with a spending plan, I find there’s a little more flexibility. Just because I don’t like budgeting, and I like spending, doesn’t mean that I ignore the basics of good financial practices. Instead, I plan some of my spending ahead of time to make sure that my most important funding priorities are met.
Before I spend on entertainment, recreation, dining out, and travel, I make sure that the essentials are covered. My funding priorities include:
- Tithing to my church
- Charitable donations
- Monthly obligations (mortgage, insurance premiums, utilities, groceries, etc.)
- Retirement account
- Emergency fund
- Effort to build dividend income portfolio
- Long-term spending goals (vacation, car down payment, home improvement, etc.)
As far as I’m concerned, once those funding priorities are met, other spending categories don’t matter. I automate most of my funding priorities, so that is all taken care of without conscious effort, and recorded in my personal finance software.
There’s no need to pre-plan how much money I can spend eating out, or going to the movies. I don’t have to hold off on buying sale-priced camping gear, just because it’s not in the budget for the month. As long as I don’t go beyond my means, there’s no need for a formalized restriction on spending categories.
Reactive vs. Proactive Financial Planning
Another difference I see between budgets and spending plans is that one seems reactive, while the other is more proactive. To me, a budget seems reactive. It’s as if you’re on the financial defensive, cutting spending and trying to avoid “overspending” in each category.
It’s a position that seems to encourage a lack of control. In my mind, having a budget is a lot like being at the mercy of your money.
On the other hand, a spending plan evokes feelings of purposeful spending. In my mind, a spending plan is about taking charge of my finances, and directing my money. I can choose the way I direct my resources, planning to fund my most important priorities.
It just seems more positive to focus efforts on creating a spending plan that puts you squarely in charge of your financial destiny. Rather than thinking, “I can’t only do this much this month,” as a budget encourages you to think, a spending plan allows you to say, “I’m going to do this with my money.” Perhaps it’s not a big difference, but it reveals a lot about the mindset.
With the budget mindset, money is always scarce. Even if money isn’t scarce in your situation, the budget mindset seems to set up financial scarcity, since you know there is a cap on what you can spend in certain categories.
Your spending plan, though, indicates that you have some sort of direction and purpose for (at least some of) your spending. It implies that you have the money to meet your goals, and that you are in charge of your money habits, deciding where your resources should be used next.
What Do You Think?
Many might say that there is little to choose between a budget and a spending plan. To me, though, spending plan is preferable.
What do you think? Do you think that there is a psychological difference between saying “budget” and “spending plan?” What do you think that difference is?