Accounting vs Budgeting

Accounting vs Budgeting

Today’s concept comes from my good friend, and dare I say mentor, the one and only Frank Levy.   For those that don’t know Frank, he founded Diversified many moons ago and has been happily retired for over a decade.  That said, I had the pleasure of hanging with my pal the other day.  We got to discussing his retirement and different topics when I asked him about his retirement budget, because you know, you can take the boy out of being a financial advisor, but you can’t take financial advising out of the boy. 

In any event, as we were discussing his happy retirement, I asked him if he sticks to a strict budget or not.  His comment I thought was brilliant, don’t get a big head Frank even a blind squirrel finds a nut once in a while, jk.  He said, “I don’t budget anymore, rather I do accounting.”  Mind blown!

You see, I’ve alluded to this concept in past blogs, but my friend gave it meaning.  He doesn’t budget, he does accounting.  So, what is the difference between the two you may ask?  Budgeting is living by a strict expense sheet and is more forward-looking.  For example, I spend $250/mo on gas for my car, $1,000 on groceries, $300 on kid’s activities, and so on. While accounting is more of record keeping and looking backward.  For instance, last month I spent $1,100 on restaurants, $2,000 on travel, and $400 on utilities. 

Who should budget?

Now let’s take a further look at who budgeting is the right approach for.  Budgeting is a great way to stay on top of things, and truthfully in most cases, probably the better approach.  Think of it as meal planning for a diet, it is holding yourself accountable for your finances at the highest and most detailed level. 

Budgeting works great if you need help planning for the future, or if you aren’t a rather good/accountable person when it comes to managing your expenses.  Budgeting works brilliantly if you live more paycheck to paycheck as it can help keep you on track and not let things get out of hand.  If you are in debt or have a spouse who isn’t particularly good at finances.  In a way, it is like giving an allowance to yourself/spouse and adhering to it.  It may be the single best thing you can do for your finances, for many of us, as it provides you the highest level of culpability for your personal finances.

Who should account?

Frank!  Just kidding, however, if I just espoused all the benefits of budgeting who the heck should account?  For starters, those who naturally have great financial habits.  Think of those who simply eat healthy, exercise, and simply stay on top of their health.  Those people don’t need a strict diet, it is just part of their lifestyle.  Same thing with accounting.  Some people max out their 401(k), save plenty of extra dollars, and live well within their lifestyle.  When it comes time to spend a little extra on a vacation or whatever they know they can since they live an extraordinarily healthy lifestyle. 

Other people, like me, their brains simply don’t work in a budgeting format.  I’ve tried, oh boy have I tried, and it simply doesn’t work for me.  I know the guardrails each month of what to save and my large, fixed expenses, and I also know the bands I can spend on “everything else.”  Accounting also works great if you make a good amount more than you typically spend in a given month.

But Andrew, above you told me “it may be the single best thing you can do for your finances”, shouldn’t everyone budget?  The answer is – not if it derails your finances to begin with, or causes more pain than it is worth.  Think of the person who meal plans and once they mess up, goes back to that yoyo diet.  It makes them feel bad; they say the heck with it all I’m done! 

Finances aren’t, and shouldn’t be a one-size-fits-all proposition.  I’ve been successful in my career knowing that I have to cater to who a person is when giving financial guidance, and budgeting vs accounting is one of the many examples. 

Shout out again to my friend Frank for living his best life in retirement and practicing what he preached for all those years.  For the rest of us, make today awesome, and as always stay wealthy, healthy, and happy.