3 Devastating Lawyer Budgeting Mistakes (and How to Avoid them)
Setting a budget may is tough already but following a budget requires a never-ending slew of decisions and judgments. Budgets are cruel dictators, mean CEOs. They don’t care about us, the little guys, the minions that are carrying out their wishes. But even though we may all complain about how arbitrary and unhelpful our bosses are (I know I do), we may not all question our budgets. Even the best laid plans need to be evaluated and revised as conditions change. Budgets are no different and this is the perfect time to determine whether your budget is ailing from one of the following three mistakes that mess up budgets for lawyers.
Mistake #1: Your Budget is Based on Someone Else’s Life.
I looked at my food spending for 2017 and I was aghast and how large a number I saw. Then I thought, well what should the correct number be? So I looked at what I spent last year. I went to Google and compared my spending by city and then according to USDA guidelines.
And what I determined: who cares how they do it?
I always wonder how people come up with their budgets. Every time I look at sample budgets, people are spending $400 on rent (whoa that’s low) and $300 on entertainment (whoa that’s high) and I throw up my hands and think, who are these people and where and how do they live? There’s no way I can use that person’s budget as a guide because their life is nothing like mine. I hate scrimping on food and I’m not going to start just because other people scrimp in that category.
Your budget is personal – it’s not competitive. It’s the most personal thing about you – even more personal than your underwear drawer. In your budget, you get to set your own priorities and set monetary values for each of them. As long as the numbers add up, and the numbers meet your desired lifestyle, to the best of your ability, it shouldn’t matter if they match with anyone else’s numbers.
How to Get Your Budget to Align to Your Life
I’m not saying it doesn’t matter at all how your spending compares to others, because it can be useful in benchmarking in areas where you don’t get enjoyment from spending more (like insurance, cable or utilities), but for areas where it’s discretionary, you get to choose. If I’m happy with my food budget, and I’m meeting my spending goals, then who cares what other people do or think? No one sees this budget but me. No one is affected by this budget but me.
It’s really great (amazing even) when you set goals for yourself and then achieve them. But it doesn’t make any sense to meet other people’s goals. You have to set your own goals.
Mistake #2: You’re Not Using Your Money to Grow.
I hear that the 50-20-30 budget is very popular (that is 50% needs, 20% savings and 30% wants) but I don’t really understand why. Why are those the right numbers? And are those numbers supposed to stay the same as you age?
Let’s say you’re an exceptionally wise young person and you follow the 50-20-30 budget religiously while making $30,000 after tax. So $15,000 needs, $6,000 savings, $9,000 fun. Let’s say that over time you double your income to $60,000 after tax. So $30,000 needs, $12,000 savings, and $18,000 fun. Wait, why do your needs double just because you make twice as much? And wow $18,000 is a lot to spend on wants. That’s $1500/month.
If you get skilled at following your budget, it’ll only get easier when you make more money. But that’s the trap of lifestyle inflation. Having the same budget year after year is like lifting the same weights over and over. As you get stronger, it gets easier to lift the weights. Good, right? But you didn’t start lifting weights because you wanted an easy activity; you started lifting waits to get stronger. Lifting the same weights doesn’t help you get stronger. In fact, at some point, you’re probably just risking injury.
How to Grow Your Budget Along with You
If you’re saving the same amount or percentage of money as your income increases, yes, you’ll be following a budget, but you’re basically treading water. Can you imagine watching someone tread water for the next 30 years? At some point, you’d just have to ask them, with all that energy being exerted, wouldn’t you rather go somewhere?
Part of the reason you follow a budget is because you want to save money, ideally enough money to have options in the future. The more money you save, the better your future could be and the faster you can get there. I think part of the reason is also to condition yourself to a certain lifestyle. You’ve learned all these skills to save money so why not keep them fresh?
Finally, things get more expensive as you get older so you often really do need to save more over time. To do that, you need to keep shifting your budget goalposts. Over time, you should be getting lower numbers on many budget metrics (like fast fashion and novelty electronics) so that if you have to increase costs on rent, insurance, and family needs or downshift your career, you have options.
Mistake #3: You’re Only Looking at the Numbers.
I know what you’re going to say. Of course I evaluate my budget by looking at the numbers. A budget is basically just a spreadsheet of numbers.
I mean, kinda.
But let’s say I look at my budget and I see the following metrics:
Coffee Shops: Up 50%
Restaurants: Up 30%
Vacation: Up 100%
Clearly, my budget is going haywire, right? I need to tamp all these down in order to save money.
But if I think back on the year, I know I went to coffee shops more often because it became a ritual with my coworker, which makes my workday much more enjoyable. Restaurant spending increased partly because I made a habit of going to fancy dinners with a friend, who was recently diagnosed with cancer. His treatment has made him lose his sense of taste – making me cherish the memories more. And I took 3 weeks of vacation this year – whereas I had never taken more than two weeks of vacation in a year, including Christmas. And I don’t regret any of it.
How to Look at Your Budget Beyond the Numbers
Your budget is literally, just a sheet with numbers and letters, an estimate of your income and expenditures for the year. But metaphorically, your budget is a description of your life and your values. It’s a record of the choices you made. And the choices you make create the person you become.
This is what’s so exciting about evaluating my budget (to a personal finance nerd like me). I can look at my budget and see what I value. I can look at my budget and see what direction I’m heading in.
Yes your budget may be going up in certain areas and that might not be a concern so long as you know why it did that and if it’s a conscious decision. If your budget for gambling or drugs is increasing, well you may want to look into that.
I think it’s important to measure your budget holistically, not just by the numbers. For me, I like to see if I like the way I’m living and if I’m getting better both at budgeting and at becoming a better person every year – more compassionate, more curious, more alive. I think I am. And my budget reflects that.
Conclusion – 3 Devastating Mistakes Lawyers Make When Creating their Budgets (And How to Avoid Them)
If you look at your budget, and it’s not helping you, then it’s a mistake. A budget is not a diet plan – it’s a life plan. And as long as your budget matches your values and gets you to your goals, then it’s a good budget.
What did I miss? What are other ways to evaluate if one’s budget sucks?