The Importance of Long-Term Savings & Creating a Strategic Road Map

This past weekend I good-naturedly ribbed my friend Craig, from Money Help for Christians, for admitting that he “kissed budgeting goodbye” after more than a decade of faithfully doing it. I mean, this is the same guy who published a successful e-book regarding everything you wanted to know about budgeting (but were afraid to ask).

However, upon further reflection, perhaps I was just a wee bit too hard on Craig. Especially after considering the fact that, this year, the discipline with regard to one of my household budgets has been, shall I say, less than stellar.

Yes, me. The guy who continually stresses the importance of following the household budget.

By the way, I know exactly what most of you are thinking right now: ONE of your budgets”? How many household budgets do you keep anyway?

Well, the truth is, for years I’ve kept two:

  • a short-term spending budget for basic living monthly expenses
  • a longer-term savings budget for bigger-ticket items.

The former is what most people think of when they’re talking about budgets; a monthly spending plan for things like the rent, utilities, groceries, entertainment, and other monthly non-discretionary and discretionary expenses.

The latter, however, is less a budget per se than it is a financial road map I rely on — a crystal ball glimpse into the future — that anticipates significant upcoming purchases like houses, cars, and/or family vacations. It may also include other things that folks typically need to set aside extra funds for including:

  • paying off large credit card and other debts
  • building up a rainy day fund and/or a retirement nest egg
  • putting the kids through college
  • home renovations
  • the kids’ weddings
  • elder care for parents

In other words, any spending that requires larger outlays of cash in the future.

One of the very first topics I ever covered for this blog explained how to build your own strategic spending plan. Although I won’t rehash that for this article, here is a very simple example of what one might look like:

Now despite the fact that the Honeybee and I are beginning to slowly move away from following a rigid monthly spending budget, we will  never stop maintaining, updating, and following our strategic financial road map. Why? Because the need for us to constantly plan and replan our financial future will never stop.

So why have we been slacking this year with respect to our monthly, short term spending budget? Frankly, because we are now in the enviable position where our income is finally high enough that we have plenty of wiggle room to handle modest budgetary overruns resulting from the occasional desire to splurge — or any other unexpected expenditures, whether they’re discretionary or not.

That’s not to say the Honeybee and I have thrown fiscal responsibility out the window; nothing could be further from the truth. We are still vigilant about maintaining our financial discipline; it’s not as if we have stopped tracking how we spend or save every penny we earn. That will never change.

It’s just that we’re reaping more and more of the many benefits that we’ve sown over the past two decades by: 1) faithfully living well below our means; and 2) keeping our income steadily growing.

And like my friend, Craig, the ability to finally get by without having to faithfully follow a spending budget down to the last dollar is certainly one perk I’m more than happy to enjoy.

Photo Credit: Wei Hsin Li



Comments

  1. 1

    says

    I think you nailed it – if you have specific shorter term goals with expiration dates like credit card debt or underfunded emergency funds, you need to budget. There is no way around it… if you haven’t been able to retire the debt or fund the savings account without budgeting, budgeting’s the next logical thing to try.

    If your goals are more esoteric or further away (like retirement), you might be able to get away with the “no-budget budget”. Even though retirement expenses cover thousands of things, you are saving for all of them just by saying “20% of income, spend the rest”.

    It all starts with “faithfully living well below our means”. Nice article!

    • 2

      Len Penzo says

      I’m not sure how anybody on a tight budget doesn’t, well, budget. I’m not saying it can’t be done, I just wonder how it’s done — and done effectively.

  2. 3

    says

    Len,
    I’ve had others who occasionally thought I made a mistake, but eventually they’ve seen the light :). JK.
    Goals are important. We’ve stopped budgeting, but we certainly still have financial goals too.
    I enjoyed the post.

  3. 5

    Millie says

    Ive never had a budget (I can hear the gasps already), but I’ve always had longer term financial goals, and to me these have always seemed more of a focus than deciding how much to spend on a particular category in each month.

    Thinking about what you’ve said, maybe I’ve always had an income that’s slightly higher than my needs, so I’ve always had wiggle room (that’s not because I earn a lot, it’s because I’m boring and careful with money!) and I’ve not had to worry about splurging on something one month. All I’ve needed to know is that if I do it repeatedly then I’ll never reach my financial goals.

    As an aside, my Mother is a budgeting expert. Every penny that comes in and out of her life is catalogued and fitted into her 12 month plan. It fascinates me the way she knows exactly how much she will spend on something any given month. I can’t see her ever giving up her spreadsheets!

    • 6

      Len Penzo says

      Yeah, as my income continues to grow, I can see how budgeting becomes less important (assuming you are fiscally disciplined). I’m like your mother: I too catalog every penny — I absolutely have to know where every dollar I earn is going. I can’t help myself!

  4. 7

    says

    I don’t budget in the normal sense either! I watch my spending by reviewing my bills as I pay them. I am constantly working on reducing my expenses. I think it takes a lot of experience with budgets to do this. Budgets should be used to help you achieve your financial goals.

  5. 8

    says

    Doesn’t it feel good to not have to follow a budget but do it anyway? Due to our spending habits, my wife and I have lived this way for about 3 years. It truly is amazing! but it takes discipline. We like zero based budgets so the “extra” money isn’t so bad. we just spend a little more and invest a lot more to make up the difference

  6. 9

    Lynne says

    I don’t live on a budget per se, but I am aggressively saving 35% of my gross income for retirement, and whatever is left is what I live on. Whenever I see an unnecessary expense I cut it out, and there are some things I just will not spend money on because I feel they are too costly for the perceived benefit. Otherwise I have plenty of food, can afford my pets and bills, and if I feel like going out to dinner or some place with friends, well I do it. And I still have extra unused money accumulating in my checking account that I periodically apply to extra mortgage principal payments. It does however help to have an income that allows this freedom. When I was in college I lived more hand to mouth due to my paltry income at the time.

    • 10

      Len Penzo says

      Good for you, Lynne. I was going to say make sure to spend and live a little too, but it sounds like you’re doing that too!

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