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Why Budgets and Budgeting Don’t Work

4 May 2024

Budgeting Does Not Work!

 Rethinking Spending: The Cash Flow Approach

When I first started in the financial business, we were taught that helping clients determine their budget was beneficial to them reaching their financial goals.  I’ve seen firsthand the cringe that the word “budget” can elicit. It’s like the word “diet”—immediately, one imagines restrictions, limitations, and a whole lot of no-fun.

Clients would hear the word “budget” and immediately they would be guarded for fear of being judged on what they spend their money on.  This would lead to “accidentally” omitting some expenses, ultimately resulting in an ineffective plan.  The whole beneficial planning exercise would be over before it began.

It’s time to shift the paradigm and start thinking of personal finances in terms of cash flow rather than budgeting.

Why? Because cash flow is not about cutting back—it’s about management and growth.

Cash Flow: A Mindset Shift

Cash flow is a term borrowed from the business world.  It tracks the total amount of money being transferred in and out of a business.

Cash flow allows businesses (and you) to easily identify growth opportunities, spot potential problems, and track overall financial health.  When applied to personal finances, it emphasizes monitoring, managing, and maximizing your financial resources.

The Psychology of Spending

Just as retail therapy can uplift one’s mood, a positive approach to spending can enhance one’s financial well-being. Encouraging clients to adopt a cash flow mindset allows them to see their finances as a dynamic and evolving aspect of their lives. It’s not about clamping down on desires but about strategically planning expenditures to align with personal goals and financial health.Cash flow

Implementing the Cash Flow Method

To adopt a cash flow mindset, start by tracking all income and expenses over a certain period, or periods, to understand where money comes from and where it goes. To account for seasonal or unexpected anomalies, you should look at cash flows over a few random months in a year.

Don’t let the pursuit of perfection get in the way of starting.  It’s important to remember that no one is perfect when they first track cash flow.  It’s an ongoing process that will vary throughout your life.

This awareness is empowering—it shifts the focus from what you can’t do to what you can do. It allows for strategic decision-making, such as investing in opportunities that can increase income or improve quality of life.Growth Mindset

The Growth Perspective

Thinking in terms of cash flow fosters a growth mindset. It’s about looking forward to what can be achieved rather than looking back at what must be cut. It’s about finding the ideal balance between fulfilling the goals of “present you” and “future you”. 

This perspective encourages investment in oneself and your family, whether through education, health, or experiences that enrich life and, by extension, financial stability.


By reframing the concept of budgeting to cash flow, we open up a world of possibilities. It’s a more holistic, positive, and growth-oriented approach to personal finance. As financial advisors, our role is to guide clients towards a mindset that not only improves their financial situation but also their relationship with money. It’s not about spending less; it’s about spending right.

I encourage you to think of your spending habits as cash flow.  It will change your financial outlook from one of restriction to one of empowerment and growth. Remember, it’s not just about the money—it’s about the mindset.


If you have questions or you’d like help on determining your cash flow, click on David’s calendar to schedule a free discovery call.

Connect with David on LinkedIn.

If you’d like a worksheet to track your spending, click Expenses worksheet.  Cash flow planning is one of the many financial planning items we help our clients with.

Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment and tax-related decisions. You should seek independent financial advice from a fiduciary, if possible.

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