Ramit Sethi argues that traditional budgets fail because they make people feel bad and focus on past spending. He recommends a forward-looking approach: decide where you want your money to go, use specific percentage allocations for saving and investing, and allocate a portion for "guilt-free" spending (e.g., buying a leather jacket or an amazing dinner) to increase motivation and adherence.
I don't like budgets for several reasons. Number one, they don't work. You talk to any American, they know they should keep a budget and yet they don't. And why is that? Because number one, it makes people feel bad about themselves. Number two, they don't know how much they owe or how much they spend, but they know it's bad. What I prefer is something that is similar but very different. And that is instead of looking backwards at what you spent, look forward and say, where do I want my money to go? And so what I do in the book is I recommend some specific percentages. Here's how much you should be saving. Here's how much you should be investing. And this one people really love. Here's how much you should be spending on guilt free spending. You want to buy a leather jacket. You want to go out to an amazing dinner. Awesome. Be my guest. That is much more motivational. It also sticks a lot more than every month. Looking at what you spent and feeling bad.
