The following is a chapter from our book, MoneySense, which is available from Amazon.

“I don‘t know how much I‘m paying for various things. I don‘t know how much interest I‘m paying on my credit cards. I don‘t want to know what I‘m paying for all these things. And Judas Priest! How did I run up this bill and in this ghastly amount?” Have you ever said any of those?

You can admit it. Most of us have said it at some time in a busy life. I did many times in my 20s and 30s. So this chapter is for everyone. It can help you live well below your means, which is one of the goals of a budget.

“God, This Is Boring”

Here, in a dull as dishwater subject called budgeting, is one of the secrets of how people start with little or nothing, yet end up financially independent, knowing that they can meet every contingency because they have considerable assets.

Those who budget, who know how much and why they‘re spending, have a much better chance of achieving wealth than those who don‘t, according to a pair of authors who have studied wealth creation. They say those who build wealth all share at least one characteristic that comes through budgeting: “They (the affluent) live well below their means”. (The Millionaire Next Store. The Surprising Secrets of America’s Wealth,” Thomas J. Stanley, William D. Danko, p3) (Longstreet Press, Marietta, Georgia, 1996)

In short, they don‘t overpay. They don‘t engage in impulse buying. They are MoneySense people. They know what they‘re doing with their hard-earned bucks. And this is a critical factor in the race for financial independence.


Budgeting, how one spends, will help ensure that your means of generating wealth won‘t get eaten up in overspending.

The Most Critical Factor

How you budget or, in some cases, whether you budget or not, can be the most critical factor in whether you can achieve your financial goals. Let‘s begin with the idea that, if you don‘t have a budget, if you just spend wily nilly, then you are like a person going to a place for the first time without any directions or map. You‘re just hoping that you‘ll arrive at the right place at the right time. Your chances of success are not good.

To achieve most goals in life you need a plan. It can be formal. It can be informal. It can be written. It can be oral. But there is an idea, an intelligent thought, in how one spends money. For example, my wife, the ever comely Suzanne Hall, and I went to Las Vegas a few years ago. She wanted to gamble. I didn‘t. At the outset, we agreed on a set amount of dollars that could be spent on various things as well as on “gaming”. (This is the euphemism that casinos and those who push lotteries like to use to promote gambling. The latter is a more accurate term. But tube ads are today often jammed with Newspeak, the language of Big Brother in George Orwell’s novel “1984.”)

Lost Money?

I considered this money as an expense of this trip just as we would pay for food and lodging. We can spend right up to this amount and no more, I said as I gave her gambling dollars.
My wife had a set amount to play the slot machines. She lost it all. She enjoyed herself. She never asked for a cent more. What we agreed on is what we lived with. If only we could say the same of so many governments recklessly spending our tax dollars!

By contrast, I saw many people in the casinos who obviously weren‘t following a budget. And, unlike the people you see on the casino idiot box ads, where everyone seems to be winning and everyone seems to be a jumping jack, almost all of those poor souls I saw playing seemed to be unhappy or incredibly tired or probably both.

When you play a game involving quick computations, you‘re obviously doing your opponent a great favor by playing when you‘re tired and more prone to mistakes.

“Please, Play More”

That‘s why the house never asks someone to leave the table when he or she is on a protracted losing streak while big winners, those few people who have the skills of card counters and who could possibly break the house, are often shown the door. That‘s also why the house gives you free drinks, but forbids employees from drinking on the job. By the way, the hotels will often give you cheap rates in Las Vegas. But that means getting to and from your rooms always leads you through their casinos. And by the way, they don’t allow their employees to gamble. Can you guess why?

The point is, unlike many of these poor souls in the casinos, we lived with a budget. And, by the end of the vacation, we were happy to leave Las Vegas with the bulk of our lifetime savings and investments intact.

That‘s more than one can say for many other poor souls vacationing in Vegas. When we received our credit card bills for our vacation, there was no problem in paying off all the balances within the grace period. That’s because they were just about the amount we expected. That meant the card company provided us with a short- term zero percent interest loan. We also earned rebate points that we later turned into cash, which slightly reduced the costs of our trip.

Do You Have a Plan?

Motto of the story: Have a spending plan or budget for any substantial spending event or events. Don‘t think of it as a big deal. It can be constructed in any manner. And, if married, it is vital that both parties agree on a plan since they are jointly responsible for the household’s income and spending. The couple must, in the process, recognize each other’s needs and wants as well as understand what is possible within their financial resources.

Finally, patience is a vital quality in making a budget work, or almost anything else in life. One doesn‘t have to have everything all at once. One doesn‘t have to take four trips in a year; certainly not to Vegas unless one wants to engage in financial self-destruction. One or two trips can be just fine this year and then you‘ll have two more to look forward to next year. One also doesn’t have to eat out three times a week. Eating out once or twice a week can be just as satisfying, a long-time financial adviser recently told me. “I had a client who was eating out several times a week. It was just too much. I persuaded him to cut it back to once a week, “said Lewis J. Altfest, a certified financial planner in New York City.

If you think you make too much to have a budget, then you are making a mistake that many big earners and even big shot developers have made. This lesson is detailed in the book, “Trump: Surviving at the Top.”

Trump, Broke?

Trump admits that, at one time when his real estate empire was in trouble, he had less of a net worth than a homeless man who had zero. Trump, through lavish over borrowing, admitted that at one time, in the midst of a real estate recession, his net worth was millions of dollars in the red. Why didn’t his bankers push him into bankruptcy? It might have taken years to unravel what assets belonged to Trump and which to the bankers.

That’s what the same financial adviser once told me. And I came across the truth of his comment in a recent story. Lewis Altfest generally just advises very successful professionals, people who tend to have annual incomes of between $600,000 and $3 million a year. The first time I interviewed Altfest years ago, for a story that was published “Financial Planning,” he told me that he spent a large part of his time providing “credit counselling” for these big earners.

“You’re giving spending advice to rich people who are running up big bills that become unmanageable? ” I asked in amazement. “Yes, certainly,” he replied. Living with a budget, or some kind of spending plan, is a vital part of the MoneySense philosophy.

Budget, Budget, Budget

Without a budget—-or call it a plan if you are bothered by the word budget—you‘ll end up reaching into your pocket again and again for your credit card to pay for various things. Often you‘ll spend with no idea of whether you‘re putting yourself into dangerous territory until the damage is done. Later, when the card company sends you the bill, you‘ll ask yourself:

“How did I ever run up such a bill and how can I ever pay the entire bill at the end of the month”?
For millions of Americans, the answer is they can‘t, at least not in the short term.

Long Term in the Red

Indeed, the long-term trend among American households has been to go deeper and deeper into hock. It is a trend we see in many other Western countries. Here in the United States, over a 65-year period between 1946 and 2011, the ratio of household debt to disposable personal income, the red ink we run up compared to our ability to pay it, rose from some 20 percent in 1946 to a bit above 120 percent in 2011, according to Federal Reserve Board numbers. That means the average household‘s income today is about 20 percent less than its household debt.

For more on America’s debt woes, please see “The New Depression. The Breakdown of the Paper Money Economy,” by Richard Duncan, pp 88-92 (John Wiley & Sons, Singapore, 1992.)

It will take many of these debt-plagued households years to dig out. The math is against them. Many ran up the debt through credit cards. That means they are trying to pay down their bills with something on the order of a 20 percent interest rate added to it. Yet there is another way.
Others who budget, who have a plan, who understand the extent of their bills and prepare to pay them off each month, don’t have that burden. The difference between these two types of people is the difference between walking somewhere carrying bags of heavy groceries as opposed to walking somewhere carrying nothing or very little.

Who would you rather be?

The difference between the latter and the former is tremendous. It is the difference between happiness and misery. It is the difference between lying awake wondering how you‘ll ever pay your bills or having a good night‘s sleep, secure in the knowledge that your financial affairs are in order.

It is the difference between MoneyMadness and MoneySense. And one of the ways to arrive at MoneySense is to understand the role of savings, an important element in ensuring one can survive hard times. Savings is a subject we will examine in our next chapter.

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. The eBook version of his latest book "MoneySense" is available now for Free Download by clicking HERE

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