We’ve all been there. An event occurs, triggering an unpleasant reminder that we really have to get better at managing our money. But many people shudder at the very idea of creating and sticking to a budget.
The American College Health Association reported in 2017 that less than half of all Americans – just 41 percent – used a budget. The Consumer Financial Protection Bureau found that same year that a third of Americans age 30 to 49 had more credit card debt than savings, and that a third of all consumers live paycheck to paycheck.
The data is dismal, but it's understandable. Budgeting implies deprivation, and it’s not human nature to enjoy feeling deprived. But you don’t have to resign yourself to a lifetime of ongoing financial stress, either, if you go in with a plan.
Creating a Budget
This budgeting business doesn’t have to be a one-time deal. Hidden in the psychology behind creating a budget is the old adage that practice makes perfect. Many people resist making a budget simply because they don’t respond well to pressure and they don’t want to risk failure. If you find that your budget is too painful, tweak it and try again.
Others throw their hands up in defeat right from the start. They add up all their monthly expenses and compare the total to their incomes only to find that the first column hopelessly exceeds the second. But many of those numbers in the expense category aren’t carved in granite. Streaming and cellphone plans can be cut back. Discretionary spending can almost always be slashed.
Of course, that brings us back to that ugly D-word again: deprivation.
Dave Ramsey points out that it’s also possible the opposite might happen. After tallying up expenses and income, you might find that things really aren’t that bad after all. You'll get a psychological boost.
Find the Most Suitable Budget for You
There’s not just one “right” way to budget. You can adjust any of these budgeting techniques to suit your own needs.
- The 50/30/20 budget has been around for a while, and some people swear by it. Half – 50 percent – of your available funds should go to essentials: rent or mortgage, utilities, insurance premiums and the like. Dedicate 20 percent to savings, and 30 percent to discretionary spending. That takes some deprivation out of the equation because you’re accounting for wants as well as needs. And nothing says you can’t tweak the formula, maybe by dedicating just 10 to 20 percent to discretionary spending because your essential bills run high. That's still better than nothing.
- The goal of the zero-sum or zero-end budget is to land at zero dollars at the end of the month, not overdrawn and relying on next month’s earnings to make up the difference. Be sure to monitor the situation as the month goes on. If you have $2,000 more coming in by month’s end, but you have $2,100 in must-pay bills due by then, you’ll have time to adjust, even if adjusting means a little deprivation. The best case scenario is that you’ll have a little money left at the end of the month that you can dedicate to savings.
The envelope system might work if discretionary spending is your weakness. Put your plastic out of reach – no credit cards allowed here. Know at the beginning of each pay period how much you can realistically spend on wants rather than needs and convert that amount to cash, then stick the cash in an envelope. Spend from it throughout the pay period, and when the cash is gone, it’s gone. Yes, there’s that D-word again, but nobody said this was going to be painless.
You can even dedicate a different envelope to each of your variable expenses, such as gasoline, groceries, coffee, and meals out.
Read More: Budget Planning & Worksheets
Sticking to a Budget
Of course, all these approaches require some measure of discipline and you should anticipate a few fails. Just make those fails work for you.
Psychology Today suggests trying to pinpoint your spending triggers. Keep a journal or a spreadsheet that notes each time you part with money that hasn't been allotted for in your budget. Also note what was going on in your life at that time. A pattern might develop over even a short period, and forewarned is forearmed.
Maybe you'll realize that you often feel compelled to stop by the pub on your way home to take the edge off when your boss gets on your case. You might not be able to get rid of your boss, but you can swing by the liquor store for a bottle of liquor instead, potentially reducing your cash out of pocket.
Technology Is Your Friend
Don’t go it alone. Make creating and maintaining your budget as easy as possible with one of the numerous budgeting apps out there for your tablet or phone, like Left to Spend. Let someone else do the math while you focus on protecting your finances.
Honesty Is the Best Policy
Surprises are not good, and yes, some unanticipated expenses will come at you out of the blue – maybe a nasty co-pay when you sprain your ankle and have to see a doctor. But don’t overlook or minimize any expenses that you can plan on. Are you seriously only going to spend $32 a week on groceries? Wishful thinking can doom even the best budgets.
Some More Tips
Discount and buy-in-bulk stores are dangerous places. The CFPB indicates that people tend to spend unnecessarily when they think they’re being offered the deal of a lifetime. Ask yourself if you really need to stockpile 27 boxes of cat litter in your garage just because each box was $1 off.
Finally, don’t be too hard on yourself. Budgeting is a challenge for the best of us, and sticking to one shouldn’t mean that you’re left miserable and wanting all the rest of your days. Do treat yourself once in a while. You're in this for the long haul.
Just make sure the expense is reasonable – and ideally, a one-time affair unlike an ongoing car payment. After all, the human psyche doesn’t thrive when it feels deprived.
- Harkins Wealth Management: The Psychology of Budgeting
- Psychology.org: Personal Budget Guide
- Psychology Today: 10 Reasons Why People Spend Too Much
- Consumer Financial Protection Bureau: Consumer Insights on Managing Spending
- University of California, Berkeley: How to Budget for More Happiness
- Discover: 5 Creative Budgeting Ideas for People Who Hate Budgeting
- Dave Ramsey: 5 Reasons Why You Shouldn’t Dread Budgeting
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.