One of the things that personal finance writers and bloggers (myself included) often encourage our readers to do is to make a budget in order to help track income and spending. This way, the theory goes, it is possible to see where cuts can be made. But, for most people, contends Bob Brooks, host of The Prudent Money Show and author of Deceptive Money, a budget just doesn’t work. I talked to Bob Brooks over the phone about his idea that traditional budgets don’t work. Here are some of the points that Brooks makes when it comes to using a budget:
“There are flaws with the whole budget system,” he says. “You’re taught that you have x-number of categories, and you mark it off. But it’s too general. Even if people are tracking their spending, they aren’t doing it in a manner that is detailed.”
Brooks uses, for an example, your budget for your kids. He points out that you may have a category labeled “kids” in your budget, but where is that money going? It could be going to clothing, toys, sports activities, or entertainment. “You might now want to cut the clothing budget for the kids, but they could probably do without as many toys,” Brooks points out. And that is the essence of his boundary system.
“With the boundary system,” Brooks explains, “you set up a detailed accounting of where everything is going. This is important, since it will help you better pinpoint exactly what you can cut out, because you know exactly where your money is going. Additionally, this system can help you plan ahead for specific expenses.”
In the end, Brooks asserts, using the boundary system to detail your spending, as opposed to relying on the generalities of the traditional budget, can help you ultimately see what you value. “You can look at your spending from the standpoint of what you value. Where your money goes provides insight into what you honestly value. If you look at your spending, and like what you see, and if you are within your income, there’s no need to change. But if you look at your spending, and you don’t like what you see, the boundary system will let you pinpoint the exact items that you want to eliminate from your spending.”
Brooks admits that the boundary system is basically the micromanagement of your finances. But it is a good thing, he maintains, since it puts you in control. “Micromanaging your finances encourages you to look at your spending in a realistic manner, and figure out a way to make it work.”