I think we have it all wrong.
The balance sheet, not the spending plan, is the main thing. Let me explain.
A spending plan does not capture one's wealth position. Nor is it a means to wealth creation in and of itself. This tool helps an individual or household track his or her cash inflows and outflows. You can make good money, be completely debt-free, have a detailed spending plan, and have a zero wealth position. We have placed such an emphasis on debt that some people believe they are financially sophisticated and better off because they don't have any, which isn't always the case. Like one should not assume that someone is financially unsophisticated and not well off because they carry some debt.
Wealth is a calculation, not a perception.
If your financial goal is establishing wealth, I believe that doing so is the result of utilizing the spending plan to execute your balance sheet aims. The balance sheet is where you analyze your wealth position and determine what might be the best strategy to improve your wealth position by a specified dollar amount or percent each year.
Assets - Liabilities = Your Wealth Position!
Naturally, when thinking about this equation, more assets and fewer liabilities equal greater wealth. But most people do not know their wealth position. If you do not know your wealth position, how can you effectively utilize your spending plan to work towards a better wealth position given your current financial capacity?
In fact, when is the last time you made a financial decision and thought to yourself, "I wonder how this is going to affect my wealth position?" Or, better yet, "I wonder how this decision will affect my family's inter-generational wealth position?"
Every decision we make can be viewed through this lens:
Should I take on this amount of student loan debt?
Do I need to spend this much money on a car?
Should I ask for a raise?
Is a $30,000 wedding necessary?
Should I create an IRA?
Do we need a 3,500 square-foot home?
Should I invest in real estate?
Is spending $1,000 a month dining out a bit excessive?
Should I increase my 401k contributions?
Would it better to wait instead of placing the purchase on my credit card?
[ Come and join in on the fun. Add your own "How will this affect my wealth position?" question. And, as you can see, I am not telling what you can and cannot have. I am merely encouraging you to find balance in your decision making: How can you live for today and comfortably secure how you will for tomorrow?]
To make a long blog post short - LOL - thinking from a wealth position state of mind helps us process and create a clear financial vision that we can execute with our spending plan. Otherwise, a spending plan can become a rudderless ship that goes wherever the wind blows (i.e., emotional spending, influenced by clever marketing, and peer pressure). And, yes, you can rationalize placing several items in your spending that should not be there. It happens all the time.
Given the gazillionth meme, IG post, or YouTube video I've seen on wealth creation, I'll leave you with this...
... We do not stumble aimlessly into wealth. Wealth creation is the result of making more financial choices that improve our wealth position than not. It might be time to adopt a wealth position state of mind.