Automatic Investing and… Budgeting?

February 6, 2015 at 8:20 pm Leave a comment

For years I’ve been doing “automatic” investing via my company’s 401k program.  All year long my money goes into various funds without me doing anything other than my daily job.  I pay attention to it about once per quarter.

Recently, I started using WiseBanyan to do the same thing myself.  Every week, $25 $30 is automatically pulled out of my checking account and invested in a portfolio of stocks, bonds, etc.  Using YNAB, I’m tracking these transfers into an external account.  This will let me, at a glance, see exactly how much money I’ve actually deposited into my WiseBanyan account in future months/years and I can simply log into my account to see what the current value is.

Automatic investing is where it’s at…

But Automatic Budgeting?

There are a few services out there, like Mint, that are thrown up as free ways to budget.  These services work by linking to your various accounts so they can monitor your transactions and automatically categorize your spending for you.  I call it Automatic Budgeting, because you don’t have to do much of anything to track your spending.

However, I think there are two key things wrong with this approach.

1.  If this is any sort of budgeting at all, it is rear-view budgeting.  You are looking at your spending after-the-fact.  No successful corporate entity operates this way.

No successful CEO ever told his management team:  Hire anyone you need and spend whatever you have to, just get the job done.  We’ll see what you spent and on what when the bills arrive.

To be successful, you have to know where you’re money is going to go before you spend it, so you can plan your spending and ensure you have enough money to do everything you want to do.  If you don’t plan you’ll almost certainly end up overspending.

2.  You aren’t invested in the method.  This may seem counter-intuitive, but if you get a free budgeting solution, whether it’s Mint.com, or someone gives you a copy of YNAB, or whatever, you aren’t invested in it.  Without a financial cost, you may quickly quit, thinking to yourself “At least I didn’t waste any money on that!”  However, if you invest money on a solution, you are more likely to give it a real shot at working.

I tried Mint.com years ago.  I signed up, linked an active account or two, and checked in here and there.  My spending habits didn’t change one bit.

To Sum Up:

Automatic Investing:  Good!

Automatic Budgeting: Bad!

 

 

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Entry filed under: General. Tags: , , , .

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