Money and Budgeting: We’ve been doing it all wrong
By Tamra Wade
Daily latte. Impulse purchase at the clothing store. Last minute meal out. Grocery shopping on an empty stomach. Mindlessly swiping your debit card all over town.
All things we do every day. All things that when done without a plan can leave us by the end of the month wondering where our money went.
Many people have some type of a budget, but only about twenty percent of people who have a budget actually write it down. Many more people don’t have a budget nor do they spend time thinking about the money they spend. The subject of budgeting provokes anxiety and discomfort.
Brad Klontz, a psychologist and certified financial planner explains in The Annoying Psychology of Why You Can’t Stick to a Budget written by Kristin Wong (May 9th 2017) how he thinks that having a budget is a bad idea. He says, “I think the entire concept of budgeting is flawed.” He goes on to say, “Your emotional brain responds to the word ‘budget’ the same way it responds to the word ‘diet’. The connotation is deprivation, suffering, agony, [and] depression.”
When most of us think about a budget we feel restriction and maybe even pain. A budget feels like scarcity. Klontz says it is human nature to overcome scarcity with money the best way we know and that typically involves spending it. This is counter intuitive from what we have heard all our lives.
As with other restrictive activities your brain can manage the depravation for a short period of time, but long term research shows that deprevating behaviors don’t work. Our willpower is only good in short spurts. LIke a muscle, willpower can become fatigued and fail.
We have to stop thinking about budgeting as deprivation and restriction. Klontz agrees saying that we should be thinking of budgeting as means to get what we want opposed to thinking it keeps us from having what we desire and need.
Klontz says to stop thinking of it as budget. He says to think of it as a spending plan. Creating a spending plan actually works with human nature setting you up for more success. “You get really excited about things you want to spend money on. And then you want to cut back on the things that don’t matter,” Klontz says. He goes on to say that a spending plan puts the attention on supporting your dreams and desires. This approach helps you feel more in control of your money. This is helpful in keeping to your plan.
Creating a Spending Plan
First, think of all the things you most value and enjoy. Klontz says to get very specific. If it is travel you desire, but that in your plan. Make a line item that accounts for travel. Maybe you are like me and love clothing. I have a line item in my newly named spending plan (formerly known as my budget) for clothing.
It does make a difference.
I have always thought of my budget as a spending plan, but I never called it a spending plan. This is money management. My father is the first person to teach me about keeping track of my spending. Years later, I learned from Dave Ramsey to give every dollar a name and a name for every dollar. Essentially, a spending plan.
I realize that this appears to be word semantics, but really the difference between the feeling you get when you hear the word budget vs the feeling you get when you think of a spending plan is powerful.
Klontz had some very good advice when creating your spending plan.
Assume you’ll overspend
“So many of us spend unconsciously. Most of us have no idea how much we’re spending, so before you dive into reallocating your money, you need to know where it’s actually going.”
It’s very easy to lose sight of where your money is going and overspend.
This is where a spending plan tool could help. I have use the Mint app. It seems complicated and scary, but it’s really cleaver. It, and other apps like it, connect to your checking and/or savings accounts. They monitor and compartmentalize your spending for you. You can set limits to your spending in these apps that will warn you when you have over spent.
They are worth checking out. I have found this type of tool to be a very eye opening exercise and a very valuable one. Not surprising, Dave Ramsey promotes the Every Dollar app. Also a good choice. It is very similar to Mint, but might have a monthly fee.
Dave Ramsey says that using an envelope system is a great way not only to stop over spending, but also to keep close count on where you money is going.
An envelope system is pretty much what you think it its. You take your pay and convert it to cash. You have separate envelopes for all your spending, such as groceries, gas, entertainment etc. You put your allocated cash in the specific envelop and go.
There is something very psychological about letting cash pass through your hands that can help get control of your emotional purchases.
I spent years using this method. I really like it. I highly recommend it.
Connect with your future self
It’s as simple as it sounds. Take the time to think about your future. Visualize it. Savor it. Klontz says that people who were able to think about their future selves were able to make the future seem more relatable. He felt that these people were more apt to stick with their spending limits as a means to satisfy savings goals for their future self.
Think of your future with optimism. Plan accordingly.
Break up big tasks into smaller ones
Breaking your big price tag items down to small manageable components will help you obtain your desired outcome, purchase, or savings goal.
Break up your savings goals into smaller increments. Saving smaller amounts will add up over time. Consistent with smaller amounts is better than being overwhelmed and tossed into a feeling of deprivation when thinking about saving larger amounts over a shorter period of time.
Breaking up larger goals to smaller ones keeps your focus in the present and provides more manageable milestones. This will provide a sense of accomplishment.
Reframing how we think about money management
Putting your spending plan on paper or in some money management tool like Mint, Every Dollar is key to getting the most of the money you make. It is essential to have an accurate monthly budget to help you keep track of where your money is going so you can make it go where you want.
Let’s help our money work harder. Let’s give our money a plan. Start small. Investigate where you are spending your money, then move to a manageable spending plan and keep building on it. Before you know it, every dollar will have a name and you will see a name for every dollar.