What Type of Budgeter are You?

As I see and work with people, I’ve come to place them into one of three categories with regards to how they budget. Now, not everyone is going to match exactly one of these three categories. But, generally people fall predominantly into one of these three. The critical part is that these behaviors have a huge influence on your financial success.

Type 1 I’ve come to call the “Budget Averse”. These people are very against budgeting, so much so that even the word budget makes them cringe. Consequently, they make no real plan for their money and they don’t track their expenses. So, they have no idea where their

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money is actually going. These types of budgeters tend to only pay attention to their bank account balance with little thought given to upcoming expenses or cash flow. “Is there money in the account? Then I can buy it,” is a mindset often found in this group. It’s not surprising, then, that this type of budgeting behavior typically leads to poor financial success.

The second type I called the “Box Checker”. These people have an idea of a plan for their money. They may even write down a budget plan or put it into an app. But, they rarely if ever track their expenses. The danger with this type of budgeting behavior is that you’re doing something so you’re on the right track budget-wise. But, with no expense tracking you’ve no idea whether you’re actually sticking to that plan or not. While making a budget plan can help you limit your expenses to some extent, more often than not people still tend to overspend in their problem categories when they are not tracking their expenses. So, again this type of budgeting behavior doesn’t tend to lead to financial success.

The final type I simply call the “Budgeter”. That’s because, of the three types, these are the only ones that are actually budgeting. These people make a plan for their expenses and they follow their expenses through the month to make sure that they meet their plan. Now, I want to be clear. You don’t always have to meet your budget plan to fall into this category. Almost every month something is going to come up that requires you to adjust your initial budget. That’s fine. But this type of behavior allows you to know exactly where your money is going and whether you’re using it to meet your financial goals or not.

As I said at the start, people aren’t always going to fit a category 100%, but I would guess if you look at your budgeting behavior you can figure out which category you tend to fall into. Are you a “Budgeter” setting yourself up for long-term financial success? In a huge study of millionaires, 93% of millionaires said they stick to the budget they make (meaning they are budgeting, tracking expenses, and adjusting the budget through the month as necessary). And the millionaires in this study were not trust fund babies or the mega-rich. The vast majority of them were regular people who had made their own money, spent less than they made, and steadily invested over time, eventually eclipsing the $1 million net worth mark.

If you’re not a “Budgeter,” why not? I’ve heard a lot of reasons (and use to say many of them myself), but the reality is Type 1 and Type 2 budgeting behaviors really decrease the likelihood of you meeting your financial goals. Budgeting doesn’t have to be painful. It doesn’t have to be a straight-jacket for your wallet. It’s simply a plan for your money. But you have to follow that up by tracking your expenses to make sure you stay on target.

For help getting started with your budget, check out this article or contact me.