Limitations vs. Control
I have a bit of a love/hate thing going with the Suze Orman show. I do like some of her philosophies, and I think she's great with the more complicated investment questions. One thing I don't like about her is her "budgets are like diets, they don't work" mantra, because it's not true. If you stick to a healthy diet, you'll lose weight. If you stick to a healthy budget, you'll save money.
The trick is you have to actually live out in real life what you've planned on paper. She is right that having a plan isn't enough. You need to have control to follow it, but control with out a plan can be a little disorienting.
Example: You use restraint and don't buy a $30 sweater you don't need. Great, so you saved $30 right...? Not exactly. I can not buy millions of dollars worth of stuff. That doesn't magically gift me with millions of dollars. (Wouldn't it be nice if it did?) To understand how much that sweater would impact me, I need to understand what assets I have, how much money is coming in, what needs to go out, and what the opportunity cost is if I go past that limit. But I need something to tell me where that limit is.
I got a little mad tonight. A woman called in, worried about 401K contributions, vs. debt payment. She said she had a history of being bad with money (because she was disorganized with her paperwork), but she started a dialogue with her husband and they had worked out a budget together. Suze first asked why the caller didn't value herself and then said making a budget was a wrong first step, first she needed control.....
I realize women learning to be confident with money is one of Suze's soap boxes, but not everything is a self esteem issue. And if it was, jumping on her case for taking a positive step forward seemed counter productive.
To me it sounds like what this woman really had was an organization issue, and a budget is an organizing tool. It might also help her to sit down with her husband and create a filing system (so they both understand and can use it). I'm a fan of color coded folders, but something as simple as an in/out tray can be a big step forward if you have trouble keeping track of bills/paperwork.
Making a budget is step 1 (organization), following it is step 2 (control), and learning what to do when it goes awry is step 3 (flexibility). And I kind of hate putting it in steps like that, because everyone has different personalities and strengths. If you start by controlling impulses then make a budget, more power to you. If you first realize that money is a flow like water (flexibilty), then learn the power of controlling water, this is also good, because you're learning. If you keep learning, you will eventually put it all together.