Suze Orman says a budget is a dumb idea to try and save money – and to do this first instead

One of the steps that many financial advisors suggest that people do to efficiently manage their money is to make a budget. However, NY Times bestselling author, podcaster, and TV show host financial expert Suze Orman says that before even formulating a budget, people need to get a clear picture of how much take-home money they bring in, what are their essential expenses, and how much are they actually spending before even considering a budget.

Identifying “Needs” Vs. “Wants”

Foregoing unnecessary luxuries to make sure that one has sufficient funds for necessities is the start of proper money management, according to Suze Orman.

Orman, who personally underwent financial hardship when a reckless Merrill Lynch account manager nearly wiped out her entire savings, knows a few things about controlling spending and managing money. The devastating experience prompted her to learn the intricacies of financial management, leading her to a career as a top executive at Prudential Securities before forming her own company. Appearances on The Oprah Winfrey Show, and her own series has made Suze Orman one of the most recognized financial experts in America.

Appearing on CNBC’s now-canceled HLN, Orman explained to host A.J. Hammer that, “creating a budget is like going on a diet: lose 5 lbs, wind up gaining 30.” She likened people who can’t control their spending at a fundamental level often will scrimp and save on little things and then blow it on 7 pairs of designer jeans. In Orman’s estimation, budgets are a premature step for people who have yet to identify where and what they spend their money on, calculating the difference between take-home income and spending, and categorizing “needs” vs. “wants.”  Some examples she cited include:

Orman is adamant that when one doesn’t have money to afford the “wants”, simply giving them up to make sure that the “needs” are covered will reap benefits. 

Student loans are, Orman’s words, “the most dangerous debt you can have.”  More than mortgage debt, IRS debt, or credit card debt, student loan debt compounds if there is a default, and cannot be discharged in a bankruptcy. Outstanding student loan debt can trigger garnishing of future wages and even be liened against one’s social security. The onerous terms under which defaulted student loan debt can legally haunt people for the rest of their lives make it so pernicious that she advises retiring student loan debt even before saving for retirement or an emergency fund.

On the subject of investment, Suze Orman is a strong advocate of incremental investing, vs. “all or nothing” approaches, as the former is easier to maintain in a disciplined fashion. If one has $100 extra dollars, she advises investing half of it and using the other half to satisfy a suppressed spending urge, rather than invest the entire $100 and obsess over not buying something. 

She closed the interview with her definition of “making it in America”, as “being able to smile about the things you have instead of wishing for the things you don’t – (and may never have.)”

Some Takeaways

Suze Orman’s approach towards financial advice is usually accompanied by solid common sense. Her tips are grounded in practical application that has been proven to work successfully for millions in the past. Her emphasis on segregating “needs” from “wants” is something that other cultures have long cultivated under “thrift”. Eastern European Jews, Southern Chinese, and Hindu Indian immigrants have all been renowned for their thrift practices and being able to “stretch a dollar.”  Superstar comedian Russell Peters even jokes about the thrift of his Indian heritage and how he holds that “Zero” as a negotiated price is an Indian creation. 

Given the ubiquity of AI and Big Data algorithms to customize marketing on our computers, smartphones, and TV viewing, resistance to spending is admittedly more difficult in this age than in any previous era. Nevertheless, prioritizing spending and resisting the 24-7 Mad Men advertising assault on our senses is the key for millions to get out from under financially. 

This article is intended solely for informational purposes. A financial professional should be consulted if more detailed and customized advice is sought.