When it comes to budgeting, there’s a broad spectrum of how people like to manage their money. That being said, often people fall into the same habits surrounding budgeting when they have similar careers and lifestyles. These can (very generally) be broken into two types.
Type One: Tight Budget, Solid Career
For people that tend to fall into this category, they often make enough money to make ends meet, but not much more. They may get cost-of-living adjustments each year, but in general there aren’t large influxes of bonuses or cash due to their careers. As a result, their budgeting tends to be tighter and more restrictive. They often have a close eye on their finances, including both the inflow and outflow of their funds – somewhat due to necessity. For anyone that falls into this category, its important to have built up an emergency fund so that you can effectively deal with surprise expenses since you may not be budgeting for them, and to ensure that you’re devoting enough of your budget to your retirement accounts and goals.
These budgeters are often strict with their budget, but they also tend to live a great life. While their career may not provide huge pay increases or bonuses, it may pay off in other ways – through flexibility, or an improved work/life balance. Often as financial planners we see people in this category that could be making more money, but they chose their life passions, their family, or their hobbies over their careers, which means that they value their time and live their lives accordingly.
Type Two: Loose Budget, Over Earning Career
In this category, people find that their careers outearn their spending. Often they don’t budget at all, or never seriously budget, because they don’t have a need when they consistently bring home more money each month than they are spending and saving. While this is the less common scenario than the first, it still exists and in various extremes.
These budgeters don’t keep an eye on their spending habits, sometimes at all – which can be a detriment. They may find themselves overextended simply because they don’t realize how much of their money they’re spending each month. Or perhaps, one spouse is spending while the other is unaware, so that they’re not on the same page when it comes to their finances. Often, the people that find themselves in this category have taken risks to get into their higher paying careers, and they generally make sacrifices for their career as well – the payoff being that they may not need to budget as tightly.
There’s no right or wrong way to budget, but it may help to understand the patterns in your lifestyle and career that lead you to budget the way that you do. Some of them may be beyond your control, and some of them are within your control, so control what you can and let the rest go.
See the article here.
By Andrew Rosen, Contributor at Forbes
Published February 22, 2024