Itemized Budget: 4 Reasons You Don’t Need One

Itemized Budget - 4 Reasons You Don't Need One

Itemized budget - featured image

An itemized budget means tracking every dollar that comes in and goes out of your financial accounts. Sound complicated? It is.

Do you need an itemized budget? Absolutely not.

While it's important to keep track of your income and expenses, having a detailed spreadsheet of every dollar you spend or save is unnecessary.

There are more important financial tasks to focus on. Like building a leveraged income that you own. Don't waste your time creating a complex itemized budget.

Here are 4 reasons you don't need an itemized budget.

Related Post: How to Make an Extra $500 a Month

1- Spreadsheets Suck šŸ˜«

Itemized budget: 4 reasons you don't need one - picture of guy on laptop in cafe

How I look when I open a spreadsheet.

I'll just state the obvious here:

Spreadsheets suck. šŸ˜«šŸ¤®

Spreadsheets are miserable for most people. Even CPAs and financial planners (like me) are no longer using spreadsheets to crunch numbers and do calculations.

Spreadsheets are powerful and can do some amazing things with numbers and data. They just aren't very user friendly. At least not for normal people.

Complex personal finance calculations get complicated quickly.

A simple formula on some basic data is pretty easy.

Itemized budget - 4 reasons you don't need one - pic of spreadsheet

This is easy. But my head still hurts.

That is the simple stuff. No multiple sheets. No pivot tables. No external data sources. No charts. No advanced formulas with fixed variables.

What if I told you to create a spreadsheet with:

  • Your (and your spouse's) annual income with state and federal taxes calculated
  • Each bank account with all deposits and withdrawals including interest
  • All your purchases categorized into transportation, groceries, utilities, miscellaneous, etc.
  • Your estimated Social Security monthly payment, based on current income and starting the payments at various ages
  • Each investing account, broken down by interest, dividends, returns and volatility
  • Income from a side-hustle or small business based on varying growth rates and reinvestment of profits
  • Everything above consolidated into a single cash-flow estimate looking forward 30 years

How would that make you feel?

itemized budget - 4 reasons you don't need one - wat meme pic

There are much easier ways to track this stuff.

You can access very advanced software that will pull current account values for you. Where you try various hypothetical scenarios and see how they help or hurt your financial future.

We use this type of software in our Wealth Academy so you can see exactly how long your money will last. That's a good thing to know!

You should only use spreadsheets if you're a statistics nerd, data-scientist or MS Excel geek trying to impress your friends. šŸ˜€

2- Goal Based Money System = Guilt Free Spending

Itemized budget: 4 reasons you don't need one - picture of women laughing

Doing an itemized budget is eye opening.

You see every detail of your spending. All. Of. It.

Which means there's no hiding from those impulse buys you made late at night. Or the fact that you ate at Chipotle every day last month. šŸ˜¬

You may feel guilty seeing the truth about your spending. A little guilt is okay and can help you change your habits. But more guilt is bad.

Want to NOT feel guilty? Set up a goal based money system. With this system, you get guilt-free spending every month. šŸ˜€

How does a goal based money system work? 

In your goal based money system, you first fund your important financial goals. This happens before any money is available for normal spending. 

As soon as your income is deposited into your account, your money robots get to work.

šŸ¤– + šŸ’° + āš™ļø + šŸ”€āœ…

In his best-selling book I Will Teach You To Be Rich, Ramit Sethi breaks this system down. I highly recommend this book to anyone serious about optimizing their money and building wealth.

At a minimum, you need 3 accounts:

  1. Checking account
  2. Savings account
  3. Investment account(s)

The steps of the money system

Your paycheck is deposited into your checking account.

The next day, money is automatically moved into your savings account and investment account. You autopay your recurring bills like rent, utilities and credit card.

Those are steps 1, 2, and 3.

Step 4 is using the money that's leftover. That's your guilt-free spending.

The transfers happen automatically using your money robots. šŸ¤–šŸ¤–šŸ¤–

Itemized budget - Goal based money system

Once you've "paid yourself" for the important goals, everything else is guilt free spending.

Remember, there are two parts of your budget: income and expenses. With an itemized budget you will obsess over those expenses that give you joy. You might start feeling guilty.

We don' want you to feel guilty anymore.

So don't make an itemized budget.

3- It's Hard to Frugal Your Way to Wealth and Freedom

Itemized budget: 4 reasons you don't need one - picture of calculator

I'm frugal about a lot of things.

I won't rent a movie on Amazon for $6 when the same movie is at RedBox for $1.50. I drive a used car (2011 Mazda 3). My wardrobe is not expensive. Just ask my wife. šŸ¤£

But there are 3 things I will spend money on:

  • Travel
  • Technology
  • Experiences with family

I want more of these things. Sometimes I want the best. Because they bring joy to my life.

It's difficult to have a large surplus of money if you focus only on your expenses. You need to grow your income also.

When you have an itemized budget, the focus is on the expense minutia. Like how much you spend on lattes. Or that evening out with friends where you picked up the bill.

I'm not saying those aren't important to your finances. They can be. I just don't want you to cut all the joy out of your life for the sake of some budget.

Especially when the biggest opportunity is on the income side, not the expense column.

āž”ļø In other words, it's hard to frugal your way to wealth and freedom.

I like the way Ramit puts in in his book: "Spend extravagantly on the things you love and cut costs mercilessly on the things you don't."

Notice he doesn't just say cut costs. He says spend extravagantly.

"Spend extravagantly on the things you love and cut costs mercilessly on the things you don't." -Ramit Sethi

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You can't do that if you only focus on the money going out. There's a limit to how much you can reduce your expenses.

There is no limit on the amount of money you can make. šŸ’°šŸ“ˆšŸ˜€

4- Mind the Big Rocks Not the Driftwood

Itemized budget: 4 reasons you don't need one - picture of sailboat

Imagine you're in a sailboat with your family. You plan to sail to some beautiful islands to spend two weeks relaxing. A dream of yours is finally coming true.

But as you leave port you see big rocks sticking out of the water, blocking your path to the ocean. If you try to sail through, the boat will sink and you'll be stranded.

To make it safely past, you need:

  • The big rocks to shrink
  • The tide to rise so you sail right over

Your focus better be on those rocks. Not the random driftwood that poses no real danger. Who cares about some driftwood when you're about to be smashed on the rocks.

When you create an itemized budget, each item is a row. There may be a lot of rows.

Some of those rows are the big, dangerous rocks that can wreck your finances. Others are the driftwood. You need to pay attention to the critical rows, not the meaningless minutia.

Don't get distracted by the driftwood. Focus on the big rocks.

Shrink these three big rocks

The three big rocks in your financial life are:

  1. Housing
  2. Transportation
  3. Food

Between them they make up about 62% of typical consumer expenditures.

Itemized budget: 4 reasons you don't need one - picture of consumer expenditures chart

If you can get those three expenses right (meaning lower), that's half your battle.

Housing, transportation, and food costs dwarf most of your other expenses. So focus there.

Make these three big rocks smaller and your financial life gets easier.

Make the tide rise so you sail right over

The tide in our story is your income.

It's at a certain level now. When you grow it, the tide rises. There is one specific type of income you should focus on building.

It can take time to build a significant income you own. But it shouldn't take much time to get started.

In fact, you can easily start a business in a week.

Now It's Your Turn to Sail

Now you have four reasons not to create an itemized budget:

  1. Spreadsheets suck - enough said
  2. Goal Based Money System = Guilt Free Spending - set up a system to fund big goals, everything else becomes guilt-free spending
  3. It's Hard to Frugal Your Way to Wealth and Freedom - don't obsess over expenses, the opportunity is in growing your income
  4. Mind the Big Rocks Not the Driftwood - shrink the 3 big rocks and raise your tide so you sail right over the trouble

Hopefully I've convinced you that an itemized budget is unnecessary. If not, that's ok too.

Now it's your turn.

Which of the four reasons made the most sense to you? What are the big rocks standing in your path to wealth and freedom?


- Tommy

Related Post: How to Make an Extra $500 a Month