The Misery but Necessity of Budgeting

Most people hate budgets and budgeting. Budgets are a reminder of our limitations. There’s no such thing as a free lunch, but we all love the idea of free lunches.

There are three budgets that are the dividing lines between success and failure in this life: the time budget, the money budget, and the weight budget. I list them in the order of their importance. Let us consider them in reverse order.


The weight budget gets most of the attention. If you’re a writer, and you want to make a lot of money, write a diet book. Diet books are the triumph of hope over experience. About 95% of those people who are seriously overweight will remain overweight. They will not lose the weight and keep it off for five years. It creeps back. They know this, but they keep hoping. About the only thing that works is an operation that shrinks the size of the stomach track. This are risky, but so is being overweight, we are told by experts.

There are a lot of diets, a lot of metabolisms, a lot of dreams, and not much will power, meaning won’t power. Most of all, there is insufficient motivation.

Losing weight is a matter of priorities. Where people remain overweight because of prosperity — cheap food — it’s because of their priorities, day by day. At some price, they can lose the weight.

Doubt me? Here is a way for any woman to slim down. She and her child or grandchild are caught in a blinding snowstorm in a cabin. There is enough food in the cabin to get one person through winter. There may be no rescue crew until the snow melts. When the crew arrives, the woman will be slim, and the child will be normal. Count on it. The woman will live on snow before she lets the child starve.

Some people’s metabolisms make these priorities easily attainable. Others make it statistically unattainable. But losing weight is a matter of priorities. Somewhere in between obesity and anorexia is where most people live, and also where they prefer to live.

At some caloric intake, anyone can lose weight. I don’t think that weight loss/gain is exclusively caloric, although some physicians seem to think it is. But in the final analysis, weight control is a matter of counting calories and then refusing to exceed specific limits per time period.

To lose weight, you need both motivation and a budget, which we call a diet. The diet must become a new way of eating for a lifetime. Diets rarely make it to this stage, which is why people re-gain the weight.

The key to weight loss is mental. A person looks at whatever it is he wants to eat but knows he must not eat, and thinks: “I don’t deserve this.” It’s a matter of just deserts.


This is the budget that is widely thought to be central to economic success. I don’t think it is. I think the time budget is. But the money budget is by far the most pressing, assuming that your physician has not told you to go home and get your affairs in order. The money budget must be dealt with each month. The risk is that you will run out of money before you run out of month.

Americans do pay close attention to this monthly budget. They have little choice. They must pay the bills.

We hear a lot about increasing personal debt. I keep coming back to this theme: monthly debt, no; long-term debt, yes. Americans’ debt burden changes hardly at all, month-to-month, year-to-year, decade to decade. There are few statistics more stable than the debt repayment to disposable income ratio. I have reported on this for years, but it is necessary that I keep coming back to it. Readers forget.

The Federal Reserve System has been tracking this ratio for a quarter century. It’s called the household debt service burden. There are two calculations.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance, and property tax payments to the debt service ratio.

Using the DSR, which is appropriate for homeowners, we find that it was 11.14% in the first quarter of 1980. It was 13.4% in the first quarter of 2005. This is the highest that it has been, which is an indicator of increasing debt. This is a 20% increase over 25 years. I do not regard this increase as catastrophic.

Looking at the FOR statistics, it has risen from 13.6% in the first quarter of 1980 to 16.16% in the first quarter of 2005. The highest that it has been was 16.21% in the second quarter of 2004. This represents an increase of about 19%, 1980 to 2005, which is consistent with the increase in the DSR. Again, this is not a catastrophic increase. It is marginal, though a long-term trend.

The problem will come if and when interest rates rise, both long-term and short-term. The DSR and FOR ratios are monthly payment ratios. A rise in interest rates will force a cutback in spending. But we knew that anyway. It doesn’t take these figures to prove that relationship.

The problem is not the debt repayment to disposable income ratio, which has been remarkably stable. The problem is the savings to disposable income ratio. We can see this decline in a chart on my favorite chart site, M. W. Hodges’ Grandfather Report site. The ratio has fallen from about 11% in 1980 to about 2% today.

Americans are careful budgeters of debt, contrary to scare headlines in the popular press. Even if they weren’t, creditors are. Creditors track carefully people’s debt levels and repayment habits. There are three major credit-reporting services that track us.

In contrast, Americans are not disciplined budgeters of thrift. They have little self-discipline in this area of their lives. They act as though they think that the future will take care of itself, that “something will turn up.” This problem has been building for the last quarter of a century. It shows no sign of reversing.

The standard response is this: “Americans have seen increases in their net worth, so they save less.” This is nonsense. First, most Americans are not heavily invested in the stock market. Only about 20% are. Second, the housing boom has only affected a relative few, adjusting for general price inflation. The decline in thrift began long before the stock market bubble, 1995—2000, and the housing bubble of the two coasts and Florida, 2000—2005.


This is the crucial budget, and by far the most neglected.

Unlike money, time is evenly distributed. People in the West have pretty much the same life expectancy. Women outlive men by about five years, and men die around age 80.

All over the world, except sub-Sahara Africa and the Russian Republic, life expectancies are converging. As wealth increases, life expectancy increases, but not much above age 80 for men.

This means that with respect to lifetime performance, we are all dealt pretty much the same hand. The average person will never get close to the net worth of Warren Buffett, but he will get close to the life expectancy of Mr. Buffett. He may even beat him.

Which is more important: life expectancy or money? Ask the man who has just been told that he has terminal cancer. If he is rich, he would probably pay most of what he owns to get another 15 years. So would the poor man. If they might not do this for themselves, they would do it if a wife or child were afflicted.

Time is our only non-renewable resource. Once it is spent, we don’t get it back. We may buy a little more time, but the opportunities of the past are forever gone.

You would think that people would pay close attention to their time. They should carefully budget their work, leisure, education, and all the rest of it. In school, we are required to prepare for tests. We must budget our time to succeed. But, once out of school, we tend to forget. We face deadlines in our jobs, but these are experienced piecemeal. They are not components in an overall allocation of our time.

There are DayTimers and competing products. There are also lifetime goal-planning programs. We know about DayTimers. Can you name two or three goal-setting programs? Yet in terms of success, the goal-setting programs are far more productive.

I have read Brian Tracy’s material for years. He is very good on helping business owners re-structure their operations. In a review of his book, Goals, we read this fascinating piece of information:

Consider this — in his book What They Don’t Teach You in the Harvard Business School, Mark McCormack tells of a study conducted on students in the 1979 Harvard MBA program. In that year, the students were asked, “Have you set clear, written goals for your future and made plans to accomplish them?” Only three percent of the graduates had written goals and plans; 13 percent had goals, but they were not in writing; and a whopping 84 percent had no specific goals at all.

Ten years later, the members of the class were interviewed again, and the findings, while somewhat predictable, were nonetheless astonishing. The 13 percent of the class who had goals were earning, on average, twice as much as the 84 percent who had no goals at all. And what of the three percent who had clear, written goals? They were earning, on average, ten times as much as the other 97 percent put together.

In spite of such proof of success, most people don’t have clear, measurable, time-bounded goals that they work toward.

I have never seen the published report of the Harvard study, so I am not quite persuaded of the 3%/97% figure. But there is no doubt that goal-setters have an enormous advantage over the competition, even when the competition graduated from the Harvard B-school.


In terms of time remaining, it’s all downhill from here. But, like the overweight person, it need not be downhill in terms of your lifestyle. People can make fundamental changes in their lives.

The most depressing story of a changed person that I have ever read was in the Reader’s Digest, probably 40 years ago. A woman who could not budget her time was constantly running late. She would drive fast to get to her appointments, but she was always late. One day, she crashed her car into a tree. One of her two daughters was killed in the crash. After that, she learned to budget her time.

I have never forgotten that story. The woman finally did learn the skill of time management. Her priorities changed. It took the death of her daughter to make her come to grips emotionally with the seriousness her problem. I have long thought, “What would she have given to have adjusted her behavior a day earlier?” But she did change. Better late than never.

Set long-term goals, mid-term goals, and short-term goals. Review them on schedule.

Design a daily time schedule to meet your goals. It is not enough to save time. You must invest time. The goal sheet is your investment schedule. The DayTimer is your savings schedule. Design them to match. Then follow the schedule.

June 22, 2005

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free multi-volume series, An Economic Commentary on the Bible.

Copyright © 2005