Budgeting isn't as straightforward as it seems

[Hamza2424]

Well, I agree with you because, bro, when we are earning better than before, we usually spend more on our lifestyle, which is not a bad thing. We can move to a better place. Before, we were not subscribing to Netflix or Prime. Now we are. Before, we were not spending money on glasses, watches, and perfumes, but after getting a good salary, we can start spending money on these things as well. And before, we were spending less on transport. Now we have started spending more. So there are several things that we add to our lifestyle that increase our expenses. So that's how it becomes a normal part of our life.

But in the beginning, deep down, we know that we are using more money than we have to, and it might be a waste, but we are chill about it because we know we are making money. So that's why we keep spending until a bad economic situation hits us, and we are forced to remove those added lifestyle expenses.

So we are back to where we started, or we have moved on, and that's it. But I agree that when something like this happens, we can find out the main difference between before and after our financial situation gets better.

[decodx]

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but, if you earn much more than you need for physical survival, you can always save something for the future. I wouldn't recommend skimping on quality food or entertainment, but if all that is covered, put something aside, save something for the future. Don't spend everything on harmful and unnecessary things like drugs and alcohol. Ah, and luxury cars are also in the same ballpark.

My question is why is it that when we have a low income we can be more efficient, and when our income is greater we will spend more as well? shouldn't we be doing the same thing, even if our income increases?

well this is a lifestyle, a lifestyle different from the needs or cost of living. Sometimes what makes our expenses swell is lifestyle, in other words not for the needs of our lives. And when we face difficulties in the future, we cannot overcome them easily, whereas with our previous income we should be able to avoid such difficult situations, for example.

IMO, humans are just wired to expand their standards to match whatever resources they have available. When you have a low income or are broke, you go without many things that you consider non-essential. You eat cheap staples, fix stuff instead of replacing it, and treat even basic conveniences as a luxury you can't afford. Then your pay jumps and the mental switch flips. It's not that you're being irrational, you're just tired of giving things up.  So you start buying the stuff you couldn't afford before, like a reliable car for example.

[Lembo69]

If we can reduce our non-essential expenses, then maybe it will be easier to budget, in fact, when our salary increases or income increases, our expenses also increase. However, to limit this, you can reduce your needs. For example, if you can make a habit of repairing something old instead of buying new ones, your expenses will be reduced a lot and this can make it easier to budget. You can reduce your entertainment expenses, and if you have a habit of alcohol or adventure, you can change them, then maybe your budget can be much easier.

[pusaka]

My question is why is it that when we have a low income we can be more efficient, and when our income is greater we will spend more as well? shouldn't we be doing the same thing, even if our income increases?

well this is a lifestyle, a lifestyle different from the needs or cost of living. Sometimes what makes our expenses swell is lifestyle, in other words not for the needs of our lives. And when we face difficulties in the future, we cannot overcome them easily, whereas with our previous income we should be able to avoid such difficult situations, for example.

IMO, humans are just wired to expand their standards to match whatever resources they have available. When you have a low income or are broke, you go without many things that you consider non-essential. You eat cheap staples, fix stuff instead of replacing it, and treat even basic conveniences as a luxury you can't afford. Then your pay jumps and the mental switch flips. It's not that you're being irrational, you're just tired of giving things up.  So you start buying the stuff you couldn't afford before, like a reliable car for example.

Well, it means that we have found the basic problem where, yes, where our income increases, our instincts as humans will also adjust to our income, in other words we try to upgrade our lifestyle as our income increases.

At first glance there is nothing wrong with that, but indirectly this is where problems will arise if we do not arrange financial management neatly. For example, we will dare to take car installments, for example, because after we calculate our income, we will be able to cover the installments. But we forget the basics, like emergency funds.

[DrBeer]

A few years ago, I noticed my money was going out incoherently. So, from that moment on, I decided to keep track of how much I was spending and on what. I downloaded a budgeting app.
I divided it into categories: public transportation, health, groceries, household items, taxis, cat, other expenses, entertainment, rent, and clothing.
And I started keeping track of it month after month. It seemed simple. But listen up. I calculated my average monthly expenses and decided that this would allow me to forecast my expenses and understand my remaining funds. But when my work and investing started to go south, I was horrified because I realized I wouldn't have enough money next month. I was very worried, because I'd been able to see how much I was spending for years (I tried to be frugal). Now I've lived through a month spending 20 percent less than usual, without restricting myself from basic needs.

Why?

It turns out that our income dictates our expenses.  I realized that because I was earning well each month, I was indulging in more without really noticing it.
So, when you're budgeting, always look at both sides: how much you spend and how much you earn. The latter figure has a much greater impact than most people realize.

I've written here many times that financial literacy is the key to greater financial efficiency among the population.
And the simplest way to improve your household finances is to track your expenses and create a budget-which is easy to do in Excel :)Here's the simplest recommendation: to start, begin recording all your income and all your expenses, broken down by day and by category (expense type). At the end of the month, analyze how much you earn and how much you spend. It's very important to consider not only HOW MUCH you spend, but also how and on what.
Take note: if you keep track of your finances and analyze them for 2-3 months, you'll be able to save between 5 and 30% of your money without changing your lifestyle! The next step is full-fledged budgeting and, consequently, comprehensive management of your personal or family finances.

[abhiseshakana]

My question is why is it that when we have a low income we can be more efficient, and when our income is greater we will spend more as well? shouldn't we be doing the same thing, even if our income increases?

well this is a lifestyle, a lifestyle different from the needs or cost of living. Sometimes what makes our expenses swell is lifestyle, in other words not for the needs of our lives. And when we face difficulties in the future, we cannot overcome them easily, whereas with our previous income we should be able to avoid such difficult situations, for example.

IMO, humans are just wired to expand their standards to match whatever resources they have available. When you have a low income or are broke, you go without many things that you consider non-essential. You eat cheap staples, fix stuff instead of replacing it, and treat even basic conveniences as a luxury you can't afford. Then your pay jumps and the mental switch flips. It's not that you're being irrational, you're just tired of giving things up.  So you start buying the stuff you couldn't afford before, like a reliable car for example.

Well, it means that we have found the basic problem where, yes, where our income increases, our instincts as humans will also adjust to our income, in other words we try to upgrade our lifestyle as our income increases.

At first glance there is nothing wrong with that, but indirectly this is where problems will arise if we do not arrange financial management neatly. For example, we will dare to take car installments, for example, because after we calculate our income, we will be able to cover the installments. But we forget the basics, like emergency funds.

I think lifestyle inflation happen due to the need for social recognition and self compensation, beside that gen z has its own lowest comfort standards which i think has undergone a shift compared to the previous generation. Whether you realize it or not, i think in this fogital openess era, social comparison is real. When our income rises, social standards often change simultaneously, it creating pressure to purchase status symbols, in order to feel equal, or simply said many people need to be recognized within a new social circle. For lower income worker, financial breathing room from a salary increase interpreted as an opportunity for healing.

Based what i learn from my small kids that he get happiness derived from buying new things and matter of fact it is temporary, problem arise when it rapidly evolving into a new basic necessity that is difficult to scale back. Many people which don't have mature financial literation always think that additional income are free money / windfall money that can be spent without feeling guilty. It will be usefull if those money used as capital to accelerate financial goals. Me my self also enjoying the extra income but I plan it and give relief for about 1 month to rethink. I consider spending money from weallet to be an important financial decision that need to be reconsidered, especially those that were unplanned and not something urgent.

[Johnlomape]

If we can reduce our non-essential expenses, then maybe it will be easier to budget, in fact, when our salary increases or income increases, our expenses also increase. However, to limit this, you can reduce your needs. For example, if you can make a habit of repairing something old instead of buying new ones, your expenses will be reduced a lot and this can make it easier to budget. You can reduce your entertainment expenses, and if you have a habit of alcohol or adventure, you can change them, then maybe your budget can be much easier.

Making a successful budget that will be easier to accomplish comes with discipline. For a person that is not disciplined, they will struggle to work with their budget even though it may not be the first time they are making that kind of budget.

Expenses can really be a challenge for people that are using budget to get what they need. Sometimes you may budget a certain amount for those things you needed for yourself and when you get to the market, you are seeing a different prices that are confusing you and if you failed to work with the budget it can make you spend more or buy less. Businesses need strict budgets for the business to flourish.

[Etranger]

A few years ago, I noticed my money was going out incoherently. So, from that moment on, I decided to keep track of how much I was spending and on what. I downloaded a budgeting app.
I divided it into categories: public transportation, health, groceries, household items, taxis, cat, other expenses, entertainment, rent, and clothing.
And I started keeping track of it month after month. It seemed simple. But listen up. I calculated my average monthly expenses and decided that this would allow me to forecast my expenses and understand my remaining funds. But when my work and investing started to go south, I was horrified because I realized I wouldn't have enough money next month. I was very worried, because I'd been able to see how much I was spending for years (I tried to be frugal). Now I've lived through a month spending 20 percent less than usual, without restricting myself from basic needs.

Why?

It turns out that our income dictates our expenses.  I realized that because I was earning well each month, I was indulging in more without really noticing it.
So, when you're budgeting, always look at both sides: how much you spend and how much you earn. The latter figure has a much greater impact than most people realize.

I've written here many times that financial literacy is the key to greater financial efficiency among the population.
And the simplest way to improve your household finances is to track your expenses and create a budget-which is easy to do in Excel :)Here's the simplest recommendation: to start, begin recording all your income and all your expenses, broken down by day and by category (expense type). At the end of the month, analyze how much you earn and how much you spend. It's very important to consider not only HOW MUCH you spend, but also how and on what.
Take note: if you keep track of your finances and analyze them for 2-3 months, you'll be able to save between 5 and 30% of your money without changing your lifestyle! The next step is full-fledged budgeting and, consequently, comprehensive management of your personal or family finances.

I have a similar system, though it is more about strategic planning than that kind of micromanagement. My planning starts from the amount I am expected to earn in the following month. This amount is more or less stable, as it is calculated based on my primary salary. Since it is the only source of income I can reliably count on, I plan to cover all essential expenses strictly from these earnings. At the same time, I have other sources of income that are simply less guaranteed, though I still have plans for them. That is where I allocate expenses that are still necessary, just lower in priority. Finally, my savings consist of all the extra earning opportunities I look for every month. This is the most fragile part of my budget because it is the least predictable. As soon as I receive all my income, I immediately distribute it exactly as planned. I try not to change the expense categories or deviate from the plan.

[DrBeer]

...
I have a similar system, though it is more about strategic planning than that kind of micromanagement. My planning starts from the amount I am expected to earn in the following month. This amount is more or less stable, as it is calculated based on my primary salary. Since it is the only source of income I can reliably count on, I plan to cover all essential expenses strictly from these earnings. At the same time, I have other sources of income that are simply less guaranteed, though I still have plans for them. That is where I allocate expenses that are still necessary, just lower in priority. Finally, my savings consist of all the extra earning opportunities I look for every month. This is the most fragile part of my budget because it is the least predictable. As soon as I receive all my income, I immediately distribute it exactly as planned. I try not to change the expense categories or deviate from the plan.

That's a very wise and sensible approach! Others should follow your example!
In fact, people often don't realize that money is a very specific tool that requires a special approach. It has its own characteristics, rules, and methods. And one of the key methods is planning your income and expenses, keeping track of them, and analyzing them.
But most people treat money like this: "Get some money-put it in the nightstand, need some money-take it from the nightstand". That's why I strongly recommend teaching financial literacy to children starting in elementary school, where these principles can be gently instilled in them.

P.S. The main problem with keeping accurate track of household finances is that many people think it's a drag and/or a complicated process

[Queen Julie]

It turns out that our income dictates our expenses.  I realized that because I was earning well each month, I was indulging in more without really noticing it.
So, when you're budgeting, always look at both sides: how much you spend and how much you earn. The latter figure has a much greater impact than most people realize.

I agree with this because budgeting it’s just about controlling how much you spend, it’s also about knowing how much you earn. You can cut down unnecessary expenses and still struggle financially if your income isn’t enough to take care of your needs. Sometimes the problem isn’t that people spend too much, but the problem is they simply don’t earn enough.

It’s important to manage your expenses, but it’s also important to look for ways to earn more. You can keep cutting down expenses when your income stays the same.

[Etranger]

...
I have a similar system, though it is more about strategic planning than that kind of micromanagement. My planning starts from the amount I am expected to earn in the following month. This amount is more or less stable, as it is calculated based on my primary salary. Since it is the only source of income I can reliably count on, I plan to cover all essential expenses strictly from these earnings. At the same time, I have other sources of income that are simply less guaranteed, though I still have plans for them. That is where I allocate expenses that are still necessary, just lower in priority. Finally, my savings consist of all the extra earning opportunities I look for every month. This is the most fragile part of my budget because it is the least predictable. As soon as I receive all my income, I immediately distribute it exactly as planned. I try not to change the expense categories or deviate from the plan.

That's a very wise and sensible approach! Others should follow your example!
In fact, people often don't realize that money is a very specific tool that requires a special approach. It has its own characteristics, rules, and methods. And one of the key methods is planning your income and expenses, keeping track of them, and analyzing them.
But most people treat money like this: "Get some money-put it in the nightstand, need some money-take it from the nightstand". That's why I strongly recommend teaching financial literacy to children starting in elementary school, where these principles can be gently instilled in them.

P.S. The main problem with keeping accurate track of household finances is that many people think it's a drag and/or a complicated process

Thank you for the kind words, I appreciate it. Actually, I didn't arrive at this concept from living a super comfortable, luxurious life. It is more of an approach developed through trial and error and learning the hard way, which now allows me to get "hurt" less. And in general, I think people only adopt a methodology that essentially restricts their immediate desires as a result of facing negative consequences from recklessly and shortsightedly indulging those impulses.

[Zackz5000]

I agree with this because budgeting it’s just about controlling how much you spend, it’s also about knowing how much you earn. You can cut down unnecessary expenses and still struggle financially if your income isn’t enough to take care of your needs. Sometimes the problem isn’t that people spend too much, but the problem is they simply don’t earn enough.

It’s important to manage your expenses, but it’s also important to look for ways to earn more. You can keep cutting down expenses when your income stays the same.

To make a budget you need to know how much you earn because it's there you can know well how to set things in place. If you don't earn more and you spend even if you spent little it will be as if you have spent enough because how expensive things has been and your income isn't increasing, and also if your income isn't increasing your budget will always be low because your budget can't go above what you earn.

[Betwrong]

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but, if you earn much more than you need for physical survival, you can always save something for the future. I wouldn't recommend skimping on quality food or entertainment, but if all that is covered, put something aside, save something for the future. Don't spend everything on harmful and unnecessary things like drugs and alcohol. Ah, and luxury cars are also in the same ballpark.

My question is why is it that when we have a low income we can be more efficient, and when our income is greater we will spend more as well? shouldn't we be doing the same thing, even if our income increases?

well this is a lifestyle, a lifestyle different from the needs or cost of living. Sometimes what makes our expenses swell is lifestyle, in other words not for the needs of our lives. And when we face difficulties in the future, we cannot overcome them easily, whereas with our previous income we should be able to avoid such difficult situations, for example.

IMO, humans are just wired to expand their standards to match whatever resources they have available. When you have a low income or are broke, you go without many things that you consider non-essential. You eat cheap staples, fix stuff instead of replacing it, and treat even basic conveniences as a luxury you can't afford. Then your pay jumps and the mental switch flips. It's not that you're being irrational, you're just tired of giving things up.  So you start buying the stuff you couldn't afford before, like a reliable car for example.

That's exactly what I was going to reply to him with. If we don't spend more after a salary raise, we can lose the incentive to work more efficiently or even to work at all. IMO, it is absolutely necessary to start buying better things and better food when your pay jumps up. Btw, many of those expensive but reliable things can come in handy when our financial situation gets worse.

[Localhostspeed]

IMO, humans are just wired to expand their standards to match whatever resources they have available. When you have a low income or are broke, you go without many things that you consider non-essential. You eat cheap staples, fix stuff instead of replacing it, and treat even basic conveniences as a luxury you can't afford. Then your pay jumps and the mental switch flips. It's not that you're being irrational, you're just tired of giving things up.  So you start buying the stuff you couldn't afford before, like a reliable car for example.

The thing is that if you are earning $200k a year and you don't discipline yourself and set limit to how you depend your income, you will see that after 1 year of receiving your pay check, you wouldn't be able to save anything. If you don't have health challenges and you decide to save 50% of your income from that money, you will be able to do it. If you want to go more than that, you can as well do it. You just need to set your standard and don't go above it.

If you don't have health challenges, your family doesn't have anything either, there is nothing that can break your plan. If you let any miscellaneous problems takes your savings from you, it's because you allow it. Sometimes people that are earning more says they wonder how people that earn less makes more saves than them, they don't know that it's discipline that's makes them to achieve the things they did.

[liasbaa]

I agree with this because budgeting it’s just about controlling how much you spend, it’s also about knowing how much you earn. You can cut down unnecessary expenses and still struggle financially if your income isn’t enough to take care of your needs. Sometimes the problem isn’t that people spend too much, but the problem is they simply don’t earn enough.

It’s important to manage your expenses, but it’s also important to look for ways to earn more. You can keep cutting down expenses when your income stays the same.

To make a budget you need to know how much you earn because it's there you can know well how to set things in place. If you don't earn more and you spend even if you spent little it will be as if you have spent enough because how expensive things has been and your income isn't increasing, and also if your income isn't increasing your budget will always be low because your budget can't go above what you earn.

Of course. It is risky to budget more than you earn, as you may end up in debt. When I was working a small job, it was not easy to meet the family expenses. I often went into debt every weekend. Determining the market in advance will not be effective if your income is low.
A person has many needs in addition to basic needs, and these needs increase with the increase in salary. It is wise to adjust to a person's limited income against his unlimited needs.

[5W-KILO]

It makes sense, mind you this budgeting solution will only make things easier for you when it comes to calculations, I don't write things down in a book as I always do the calculations in my head and I've always been able to safe when needed.

The only But here is emergencies, can we really get away with budget expenses every time?  The answer is no and that's why some people also save money up for emergency purposes.

I like applying this strategy when I want to save up for something, because I don't like where by along the savings something unexpected happens and I will have to take from the savings account again, emergency funds must always be considered.

[Plutomanian]

It makes sense, mind you this budgeting solution will only make things easier for you when it comes to calculations, I don't write things down in a book as I always do the calculations in my head and I've always been able to safe when needed.

The only But here is emergencies, can we really get away with budget expenses every time?  The answer is no and that's why some people also save money up for emergency purposes.

I like applying this strategy when I want to save up for something, because I don't like where by along the savings something unexpected happens and I will have to take from the savings account again, emergency funds must always be considered.

Budgeting is very important for our well-being, atleast we get to get acquainted with the whole scenario of saving money and also not living above our means which is consider to be outrageous. We spend what we can afford and also stay on the line. We also are aware that incidental expenses do come our path and when it does, I think we should be prepared enough to handle them. That's what we do? We're human and we do our very best to fight against every challenges that comes our way. We also should consider saving because it's one of the mechanical ways to save our selves from crucial debts and unexpected turns in this world.

[Hypnotizer]

It makes sense, mind you this budgeting solution will only make things easier for you when it comes to calculations, I don't write things down in a book as I always do the calculations in my head and I've always been able to safe when needed.

Budgeting doesn’t always need to be in a book.. it’s just about knowing what to spend from your income, on what to spend it, and what to keep from it.

The only But here is emergencies, can we really get away with budget expenses every time?  The answer is no and that's why some people also save money up for emergency purposes.

Emergencies are inevitable and we cannot plan for them but that’s why having an emergency fund is very important, it should also be included in your budget because it will help you keep track of your budget expenses very well.