July 24, 2005

David Bach and Budgeting

Here's how big a freak I am:

I'm not a big fan of David Bach. I could go into details, but for the sake of time, I'll just sum it up like this: People want easy, and David Bach sells easy. I think he does his readers and his audience a huge disservice with some of the things he proposes.

With that said, though, I've now purchased his 2004 book The Automatic Millionaire in both hardback and audiobook formats. So as much as I disagree with him on some issues, I still give him money. And advertise his book on this page.

I've listened to the audiobook probably 5 or 7 times, and I have yet to read the hardback completely. (I've also read Smart Couples Finish Rich, and attended a class on that book and its philosophies.)

Lately, I've read several other bloggers' comments on Automatic Millionaire, and most of them have been pretty complimentary. Yes, there are some good things between the Automatic Millionaire covers. The idea of "paying yourself first" does indeed need to be stressed, and Bach does this repeatedly. Retirement planning via automatic paycheck deduction and/or electronic deposit is anther positive step which Bach rightly encourages. His entire "Latte Factor" spiel is built upon the realization that most people fritter away staggering sums of money during their lifetimes. That, too, is an idea worth emphasizing. (Even if his math is a bit skewed. See my related article from August, 2004, linked at the bottom of this page.)

I'll give Bach credit for spotlighting the topics above. He actually does a great job with them — better than Dave Ramsey, Suze Orman, Mary Hunt, or any of the others. But what I read in Chapter 3 of Automatic Millionaire makes me cringe.

What'd he just say?

"What we're going to do now," he writes in the first paragraph of Chapter 3, "is, once and for all, get rid of that pain-in-the-neck thing called a budget."

Get rid of it? Really? And why is that?

"If you really want to budget your expenses, that's your business, but I think it's a waste of time and effort," he says. "Any system that is designed to control your normal human impulses is ultimately bound to fail."

Okay. So I shouldn't bother setting my alarm clock in the morning, either, right? Because my normal human impulse is to sleep until 10am, and attempting otherwise is an exercise in futility. Whatever.

But let's go on. This next passage is a doozy:

There's a very simple reason why budgets don't work in the real world. They aren't fun. And because they're not fun, they are very difficult to stick to. Think about it. What budgeting boils down to is depriving yourself financially today for the sake of your future wellbeing. This is certainly a responsible idea, but as a strategy, it goes against human nature. Even worse, it goes against the 3,000 marketing messages that bombard you every day, urging you to spend every penny you earn.

Oh, heaven forbid I defy 3000 marketing messages. They're just so big and powerful and hypnotic. And I'm just a little ol' helpless consumer. Woe is me.

Look — at this point, for me, Bach's advice borders on sickening. Can't you almost hear the voice in his head:

I know! I'll get good word-of-mouth sales from my book if I tell people that budgets (read: discipline) aren't necessary! I'll set myself apart BIGTIME! Almost no financial guru says that!

You're right, David. They don't.

Pretty amazing that none of those guys are as well-versed as you on the intricacies of human nature. Good thing we have YOU to keep your thumb on the pulse of what works in personal finance. As it is, not many people in this country plan their spending, or budget, in any sort of effective manner. So basically you're just telling people to keep doing what they've been doing, right? And so far, that's worked out just great for us, right?

Right?

Ah well. At least most of us will become familiar with that "ultimately bound to fail" thing.

Crap. I've been doing this all wrong.

So I guess I've been deluding myself all this time. I took up budgeting (monthly spending plans) about the same time as I created this web site. I spent roughly the first 12 years of my adult life acquiring debt — darn easy to do when you're not budgeting, in case you haven't noticed — and then, when Life recalibrated my outlook for me, a halogen light went off in my brain and I brought budgeting into the picture.

Voila! Three years later, and everything but my mortgage is paid off.

An even neater thing? I began "paying myself first," via 401(k), way back in 1997 — long before I began budgeting. Did "paying myself first" mean my savings began to noticeably grow back then? Yup. And often at a nice pace.

But somehow, despite the fact that I was "paying myself first" (which is Bach's answer to every financial question, I think), I still managed to keep inflating my debt load all the way up to 2002. And even though my savings were increasing all that time, debt was doing its best to keep pace. My life wasn't getting any easier. In fact, the reverse was true. My life slowly became more and more stressful.

See what I'm getting at here?

31 years of life w/out budget = $10k in credit card debt ... $20k in student loans ... $20k in auto loans ... some retirement savings ... and a mortgage.

3 years of life + budget + revised attitude = All debt gone, except mortgage. "Some" savings now becomes "substantial" savings. Life is WAY better overall.

Neat coincidence, huh?

Sure wish I knew what caused a turnaround like that. Could probably help some people.

Yes, "paying yourself first" is important.

I'm not going to argue the point: Paying yourself first is monumentally important. But, in my opinion, that alone will get you about three steps past nowhere. "Pay yourself first" all you want, and drone on about how you've decreased your "Latte Factor" by $1.50 per day over the last six months. But if you don't tell your money what you want it to do — this requires at least some semblance of a budget — then it will most likely just leave.

Quietly.

Frustratingly.

Every single month.

I'm sure there's a secret clique of people, somewhere, who can make their money do what they want without using a monthly budget. Ten grand in credit-card debt, plus dwindling checking and savings accounts, taught me that I'm not one of them. Judging by personal experience and "talking money" with lots of other folks, I'd say that budgets / spending plans would greatly assist roughly 100 percent of the non-budgeters with whom I speak.

Anyway, I recommend ignoring David Bach on this issue. A budget is not a waste of time. When used properly, it's a kick-butt financial power tool capable of sawing, drilling, and routing pretty much whatever obstacle you throw down. Get creative, and you can even make budgeting fun — a sort of game you actually look forward to playing every single month.

And one more thing:

"You can't spend what you don't have," he says in the book. Since when?!

Cripes. Most of us have plodded through our lives doing this exact thing — spending money we don't have. Our country's economic house is pretty much mortared together with the concept. How in Heaven's name does Bach think Citibank, Capital One, GMAC, and all the rest got to be such gargantuan institutions? Bake sales and bike raffles?

I'm sorry, but this is 2005. "You can't spend what you don't have" is an absolutely ridiculous statement to make, and it's a horrible theory upon which to base a financial plan. Bach repeats this notion — and emphatically — several times on audiobook disc #2.

So much of his proposed pathway to wealth hinges upon the idea that "we can only spend what's in our checking account right now" that it makes me want to throw a heavy Swingline stapler at him ... particularly when I consider his concurrent stance on budgeting.

It just seems to me that Bach has made a pile of money unleashing a plan that, for most people, is fairly shaky.

But he's the expert. Perhaps he just knows people a whole lot better than I do.