Tag Archives: budget

Turbo Budgeting

With all the emphasis I place on living comfortably within your means, it may come as a surprise that I don’t bother with a budget.

Yes, it’s true; the tight-fisted, penny watching Grumpy Pundit doesn’t use what is possibly the most often recommended means of managing your home finances. And you probably shouldn’t either.


Now, if this were the conventional sort of financial advise blog, I would jabber on for a bit here about how to set up a budget. I’d tell you to list your monthly expenses and total them up, and total up your monthly income, and carve away portions of the former until it fits within the latter. Most likely you would nod thoughtfully and make a mental note to do that, then go watch TV and forget about it. If you were feeling particularly dutiful, though, you might fire up your bootleg copy of Excel and fill in a few numbers, take your best guess at a few more, and decide that if you cut your drug habit back to $500 a week that’ll still leave you $50 a week for groceries and let you save up a little money for a spring break trip to the coast to get laughed at by girls who are much too young for you.

Or something like that.

At any rate, after reading my conventional advice and spending a bit of time fudging numbers in Excel (come on; do you really know how much you spend on groceries every month?) you might actually come up with a budget, determine that you can spend this and that much on these and those things and you might stick with it for a week or two and then you’ll forget about it. Right? Come on, be honest. You can’t even stop watching that crappy TV show that was funny last season, but sucks this season. Do you really think you’re going to change your spending habits just by whomping up a spreadsheet and deciding to?

(OK, sure, there are a few people who could do that. They aren’t surfing the web for financial advice.)

But this is the Grumpy Pundit Blog. We do things differently here. I’m going to tell you how to live within your means, and even save money, without wasting any time on a budget that you’re not going to pay any attention to anyway.

First rule. Pay your bills in full. That is, don’t carry a balance on your credit cards; pay them off every month.

Second rule. Pay yourself first.

Sounds pretty simple, doesn’t it? But simple does not mean easy and most people can’t manage it.

If you can follow the first rule, you are automatically living within your means. You are not spending any more than you are making. The adjustment you have to make here is not a budgetary one; it’s mental. You must fix the idea in your head that what you buy in a month must be paid for that month. Be as extravagant as you like, but remember that the credit card bill has to be paid off completely when it comes due. Do that and your spending is automatically limited by your income.

That may seem obvious, but it is a — perhaps the critical step to getting control of your finances. Pay your bills on time and in full. It’s a simple rule that is easy to get your head around and I find that simple rules like that are much easier to stick to than a complicated budget.

But what if your credit cards already have balances on them and you simply can’t pay them off each month? Simple; pay off all the new charges plus interest. Don’t let the balance grow. Cover what you spend each month out of that month’s income (or, if you have to, your emergency fund).

It may take you two or three months to adjust to that. Once you have, it’s time to go to Rule 2.

Pay yourself first. This reverses the way that most people save money. Rather than taking anything left over at the end of the month and putting into a savings account, decide how much you want to save each month and put that into savings before you pay your bills. If possible, set up an automatic transfer so you don’t even have to think about it. (If you are carrying a balance on your credit cards put the extra money towards paying that off instead.) By doing this you are adjusting your spending to fit your savings rather than adjusting your savings to fit your spending.

Let’s try an example to see how this works. Let’s say that you make $4000 a month and after you finish paying your mortgage, car payment, utilities, groceries, etc., (including that money that just seems to melt out of your wallet; the two or three hundred a month you never can quite account for) you have $1000 left of the month’s pay.

Then the credit card bills come in. You have outstanding balances of $3000, with $1200 in new charges.

Uh, oh. There isn’t enough to even pay all the new charges. You grit your teeth, remind yourself, “Pay in full,” dump that $1000 on the credit cards and resolve to cut back on your spending so you can do better next month.

Next month you’ve got $1100 left before the credit card bills (progress!). The credit card statements land with a thud on your dining room table and amount to $3250 in balances carried over plus $800 in new charges. Pour all $1100 into the credit cards, to start paying down that debt.

Fast forward several months. You’ve paid off the credit cards and gotten your average credit card bill down to about $700 a month. You figure you can start saving $300 a month now. Pay that $300 a month into your savings account first. Then pay all the other bills. Conceptually, what you are doing is subtracting that $300 from your income, forcing yourself to live within that reduced income. It’s like your pay was cut to $3700 a month and now you have to cut back.

These are, as I said above, very simple tricks. They are, however, very powerful tricks. The magic isn’t in what numbers you juggle around, it’s getting yourself into the habit of following one simple rule that’s easy to grasp and focus on. Whether it’s setting yourself an exercise plan (“I’m going to work out for twenty minutes every Sunday night.”) or managing your household finances, creating a simple rule for yourself and sticking to it come hell or high water is the way you get things done.

Pay your bills on time and in full. That’s all the budget you need.

Pay yourself first. Decide how much you want to save and put that money aside automatically, before paying any other bills.

Do those two things and you’ll be ahead of nearly every other person in the United States. Practically no one will be as good at managing their money as you. Take pride in your accomplishment.

Oh, and think about that exercise plan too.

Whose Security Are We Spending For?

This is a start. Not a very good start, but a start. Panetta is talking about cutting back some of the unnecessary increases of the last decade, not actually reducing military spending to a reasonable level.

The looming cuts inevitably force decisions on the scope and future of the American military. If, say, the Pentagon saves $7 billion over a decade by reducing the number of aircraft carriers to 10 from 11, would there be sufficient forces in the Pacific to counter an increasingly bold China? If the Pentagon saves nearly $150 billion in the next 10 years by shrinking the Army to, say, 483,000 troops from 570,000, would America be prepared for a grinding, lengthy ground war in Asia?

These questions are, frankly, stupid. Let me rephrase them.

Would 10 US carriers, backed by decades of experience in carrier operations, be sufficient to defeat China’s single barely-completed aircraft carrier that they bought from a salvage yard? Would five US carriers be up to the task?

If we were stupid enough to get involved in a major land war in Asia, would the difference between 570,000 troops and 483,000 really make a difference? Or even 250,000?

Arguments against reducing the size of the military establishment aren’t about national security. They’re about making sure that money keeps getting funneled to defense contractors (and back to the politicians, in the form of ‘campaign contributions’). Our actual military needs are tiny, and could be (and have been) served by a substantial navy (about half the size of the one we have now), and a minuscule army. Our needs are small, but the people hooked on that spending are strong.

Generals and admirals will always ask for more troops and ships. It is old wisdom that generals who go over-budget get scolded, but generals who fail get fired. Even so, our Congress spends even more on defense than the military asks for. Ask yourself why, and who is served by that spending. Is it you? Or the members of Congress, and the corporations that pay them?

Could This Be…Good News?

The Department of Defense has issued a new Defense Strategic Guidance statement, coincidentally just a few days after I sent the White House my suggestions for cutting the budget. I’ve read the document and, rather to my surprise, it makes a great deal of sense. It appears–and much depends on how it is actually implemented–to return the US to the sort of strategic planning that prevailed through most of the 20th century.

First, a bit of background. Throughout the 20th century, it was a strategic goal of the United States to have a continental ally in any major military involvement, and let them do most of the dying. Whether it was France in WWI, the Soviet Union in the European theater in WWII (and China in the Pacific), or South Korea and South Vietnam, the goal was the same; let someone else provide the mass of infantry that was going to take most of the casualties, while the US provided air, naval, and armored support. Even when Iraq invaded Kuwait in 1990, a major goal of US policy was to involve troops from local allies. Syria and Egypt, as well as other local powers, contributed significant forces. This was not merely a political gesture, to show that the United States was not acting alone, but a continuation of sound US strategic policy. Even in Afghanistan in 2001, the US initially provided leadership and firepower (and large amounts of cash), while local allies did most of the fighting.

The lack of a local ally for the 2003 invasion of Iraq was a major failure of US diplomacy and planning. (Turkey was the obvious candidate, but could not be induced to even cooperate, much less participate in the invasion.) As a result, US forces had to provide most of the manpower (and relatively significant casualties) for most of the war. Perhaps the fallback plan was to use a reconstituted Iraqi army in the allied role, but if so that too was bungled and only in 2008, five years after the start of the war, was the new Iraqi army ready to take over significant operations.

The new Strategic Guidance statement talks a very great deal about allies. I think the DoD has learned a valuable lesson about the costs of going it alone. (I mean no disrespect to the British and other allies who contributed troops, and suffered losses, in Iraq and Afghanistan, but their roles were comparatively minor.) There are numerous sentences like “U.S. forces will plan to operate whenever possible with allied and coalition forces.” This is good strategic sense. In particular, India is emphasized as a key ally. I have been saying for at least twelve years that securing India as an ally should be a key goal of US strategy and diplomacy, so it is pleasing to see this finally recognized at the highest levels.

The new strategy, boiled down to its essentials, is this:

‘We can’t afford to keep doing what we’ve been doing, so we’re going to concentrate on the areas that really need our attention, and make sure we have local allies to help us out.’

This is a perfectly reasonable plan. Naturally, many people object to it, ostensibly because it means abandoning certain features of recent strategic doctrine, but more realistically because lower military spending means some corporations will make less money.

For example, a stated goal of recent US strategic planning was the ability to fight and win two wars at the same time. The new goal is, if it is necessary to fight two wars at the same time, to fight one as a delaying action while winning the other, then concentrate resources on the other to win that as well. This seems like a significant change, but it really is not. The ‘win two wars at once’ capacity, you see, never actually existed. The doctrine fell apart when it was put to the test. To fight the war in Iraq, it was necessary to put the war in Afghanistan on hold, and it could only be resumed in a serious way as US forces were withdrawn from the Iraq war. The new doctrine is not a change; it simply recognizes circumstances as they actually exist.

A couple of other points are worth mentioning. The new statement includes this statement:

“Likewise, DoD will manage the force in ways that protect its ability to regenerate capabilities that might be needed to meet future, unforeseen demands, maintaining intellectual capital and rank structure that could be called upon to expand key elements of the force.”

This is interesting on two levels. First, it recognizes that the DoD would need to expand to fight a major war and intends to keep the capacity to do so. This is nothing new; WWI and WWII were both fought mostly with men who had been civilians a few years before. It also means that as manpower is reduced a greater proportion of officers will be retained. Officers, in other words, are less likely to lose their jobs than enlisted men and women. That is important not only for its implications on future mobilizations, but on current careers and politics within the DoD.

“We will resist the temptation to sacrifice readiness in order to retain force structure, and will in fact rebuild readiness in areas that, by necessity, were deemphasized over the past decade.”

This means that the DoD will not try to maintain troop levels if it doesn’t have the funds to arm, equip, and train them properly. Quality is more important than quantity and the most important feature of a military organization is its firepower and combat capacity, not sheer manpower. The number of people in uniform is a convenient benchmark for politicians to pick up and try to score points with, but it matters relatively little if the troops have to be used.

Overall, I am pleased with the new strategic doctrine and matching cuts in DoD spending. The strategy is solid and the cuts, while they don’t go nearly as far as they could (and, I believe, should), are a good start. It recognizes both the strategic realities of the world as well as the necessity of a strong economy to maintain a strong military. Well done.

Happy Coincidence?

Wouldn’t a nice little war with Iran be a great antidote to all this crazy talk about cutting the military budget?