“Who’s excited to do a budget?” (hearing the sound of crickets…) That’s exactly the problem with budgets! Maybe two people out of a hundred are actually excited about budgeting and what it helps you accomplish. In this episode of the Money is Emotional podcast, I explore why most of us don’t like traditional budgets, how to shift our mindset around tracking our numbers, and tangible actions we can actually get excited about. (Yes, really!)
The Problem with Budgets
Problem 1: “Budget” is a Dirty Word
When most of us hear the word “budget,” we immediately think of unpleasant things like discipline, restriction, and no room for fun. We think a budget is going to be the equivalent of a financial keto diet. Some financial gurus (ahem, Dave Ramsey) tell you to “learn to love budgeting!” Bleh, no thanks!
Let’s just drop the word altogether and call it something positive: spending plan, financial freedom plan, or (my favorite) the Prosperity Plan.
Problem 2: Strict Budgets Teach the Unhealthy Pattern of “Financial Bulimia”
The second problem with budgets is that you have to cut your spending to the bone so you can make major progress with saving and debt reduction. I’m all for forward progress with your money, but going from one extreme to the other is the equivalent of “financial bulimia.” If all you know is complete unrestraint with your money and you go on a super-frugal plan, you’ll come to a point of burnout. When you quit your super-restrictive plan, what do you do? You go back to the only thing you know: complete unrestraint. It’s the same reason people quit low-carb eating plans -there is no room for fun!
Problem 3: Budgets Set You Up for a Pass/ Fail Paradigm
When I’m coaching clients, I have to remind them that their spending category limits are not pass/ fail. When you see that you’ve gone over in a certain area, it can be easy to feel disappointed or beat yourself up. Get curious instead! Did you go over it because you underestimated it? Or because a one-time event occurred? Also, you haven’t “won” if you are consistently $500 under budget in a certain category either. It’s more important to be accurate than to be under budget. Your goal should be hitting the target as close to the bullseye as possible.
Problem 4: Micro or Macro Budgeting?
Another problem with budgets is how much detail to track. Should you have a category for every possible expense like electric, water, trash, internet… or a macro category like utilities? Some people love to see all the details, while other get overwhelmed by a myriad of individual categories. Step back and look at the big picture (macro budgeting). Yes, micro budgeting gives us great information and shows us where opportunities for change exist. In the long run, we should be more concerned with macro budgeting. Are you spending less than you make overall? Look at your income and spending over 3, 6, or 12 months versus a single month.
Problem 5: Your Budget will Never Be Perfect
The final problem with budgets is that there is no such thing as a “normal month” when it comes to planning your expenses. Most people’s spending is 60-80% fixed and 20-40% variable. Many of your monthly expenses will be constant (mortgage, car payment, utilities) but some will vary greatly from month to month (healthcare, gifts, vacations). Use a personal finance app like Monarch to help you estimate irregular expenses, so you’re setting aside money for them.
Want my 1:1 help to created your personalized Prosperity Plan (with plenty of room for fun)? Click here to schedule a chat with me.