Why Some Experts Say Budgeting Doesn’t Help You Build Wealth. Have you fallen into the budgeting trap?


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Eighty percent of Americans (in a survey of more than 1,000 people) say they have a budget, according to Debt.com. According to the site, this is the highest number of respondents who requested a budget compared to the last four years.

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But let’s be honest. Have you ever met people who have budgeted their way to millions?

Probably not. They are more likely to invest rigorously, buy investment property or start a business.

So why the increase in the budget? Why do Americans like to budget? (Isn’t that a bit like dieting?)

Let’s take a look at the reasons why budgeting alone doesn’t actually help you build wealth, according to some experts.

Reason 1: Budgeting is not investing.

Budgeting isn’t an investment – it’s about taking care of your pennies. You might think this statement sounds odd or obvious, but it deserves some consideration. Instead of investing immediately, budgeting prioritizes setting aside some of the money to pay the bills and not overspending. By itself, you are not making money for yourself when you budget. Prioritizing budgeting actually prevents you from exploring solid ways to expand your wealth.

Reason 2: Investing before budgeting can make more sense.

Instead of budgeting to invest, why not invest first? It can help you build wealth faster.

Here is a common scenario:

  1. You bring in a specific amount of income each month.
  2. You put all the money where it’s supposed to “go” – you know, in those specific savings “envelopes”.
  3. Then you find out that your car needs new tires or you realize you need to replace your HVAC system.
  4. All the good budgeting intentions during the month go out the window because you discover that you have no “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 first and spend your time focusing on it.

Reason 3: Budgets often place investment as the last priority.

Unfortunately, budgeting sometimes makes investing last on the priority list and puts paying bills first. When you fall short of your budget, it can lead you to think that you can’t invest. You might think you need to get a part-time job, spend less, or choose another job. The reality is, you could have more than you think if you reverse your priorities.

Invest first, then pay your bills and watch your spending. Help your money work for you.

What you can do instead of budgeting

What could you do to build wealth instead of focusing on a budget? We will take a look.

Step 1: Pay yourself first.

What does the term “pay you first” really mean? This means that you first put money into your own savings and investment accounts. You are paying for your future by putting long term needs and expenses on your radar. Let’s look at some examples of how you might pay yourself first each month. You could:

  • Putting money into a 401 (k) or an IRA
  • Boost your health savings account (HSA)
  • Create an emergency fund for future expenses
  • Save for college for your kids

You pay for your future by saving before spending a dime of your hard-earned income.

Step 2: Focus on saving a percentage of your income.

Let’s go a little deeper into “pay yourself first”. Focus on saving a percentage of your income. Many experts recommend saving at least 15% of your income in a diversified portfolio.

As long as you save at least 15% per month, think of it this way – it doesn’t matter how you spend the remaining 85% of your money. As long as you hit your savings goal, you’ll hit the savings milestones you need to hit. If you continue to do this for the rest of your life, you should have more than enough for your golden years.

If you think you can’t immediately save 15% of your income, consider building up the amount slowly. Start with just 5%, then slowly increase the rate at which you save money in your IRA or 401 (k). You’ll feel the bite less if you gradually increase the amount you save.

Take a look at a few other tactics to help you reach your 15% goal:

  • Save your extra paychecks. If you get paid every two weeks, you will receive approximately two additional paychecks throughout the year. Save that money when they show up.
  • Give your bonus a boost to save. If your employer offers a year-end bonus, use it to reach your 15% investment savings for the month. You will end up with more discretionary income because you will already have automatically invested money in your investments.
  • Paint your expenses. While this sounds a lot like a budgeting tactic, looking for ways to waste money can help you find the 15% to budget more.

Step 3: Allocate your money in the best possible way.

What is asset allocation?

It is about dividing an investment portfolio between different asset classes, such as stocks, bonds and cash. The best mix of assets for you depends on your time horizon and your tolerance for risk.

In other words, how much time do you need to save? If you are 30 and plan to retire at 60, you have 30 years to let your money pile up. How you invest over a 30-year period depends on your tolerance for risk. Are you willing to take riskier stocks or do you feel more comfortable keeping your money in lower risk bonds?

Build a portfolio that can help you achieve your goals. The right mix of investments can help you get there, but first and foremost you need to consider your needs and goals.

Skip the budget, build wealth instead

Don’t worry too much about daily expenses. (Many budgeting apps try to focus on this rather than the big picture.)

Set your financial goals, make sure you’re saving enough to meet them, and tell yourself that as long as you’re saving enough each month, why is it important to know where your extra money is going?


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