“Eww, gross I hate those.” Those words come out of my five-year-old’s mouth on a daily basis.
I also hear this saying from my clients when we start talking about their budget. Other popular responses include, “Do we have too?” “I don’t think I need one of those.” And “I’m pretty good with my money.”
Then there are the people who love to budget. They come with a stack of spreadsheets and printouts from Mint.com. Let me tell you something most financial planners won’t. You don’t need a budget.
Why a Budget Isn’t Good for You
So, what exactly is wrong with a budget? Here is a list of just a few of the problems with budgets:
- Budgets are often an exercise in looking back and taking a measurement of your monthly failures.
- Budgeting is time consuming, even with today’s technology.
- Your budget probably doesn’t have a stopping point for spending.
- By creating a budget, we are teaching ourselves not to spend money.
- Your budget doesn’t address your relationship with money.
If you feel like your budget is hurting you more than it’s helping, What can you do to fix it?
Start With Your Values
The most common mistake in making a budget is focusing on the negative. No one succeeds by focusing on the things we don’t want to do. Much like creating a financial plan, your budget should focus on the things you value most in life.
It’s time for a reality check. First, I want you to think about what’s most important to you. Is it your kids, spending time with your family, traveling or living in a nice home? Now I want you to look at the transaction history of your credit card or bank account. Take a close look at where you are spending your money. Is it on the things that are most important to you, or are you spending your money on take-out dinners and scratch-off lottery tickets?
If you are spending your money on what’s most important, great! Now all you need to do is put a system in place to make sure you're not spending too much. You want to be able to continue doing the important things of today in the months and years to come, right? (For more from this author, see: The 3 Most Important Tips for Your Financial Plan.)
If your money is not going toward what’s most important, you’ll want to make sure you have a plan to help change your behaviors. Set up a system that helps you to do these three things:
- Pay the bills every month.
- Have enough money to make everyday purchases that are important to you.
- Save money for the goals you have over the next 12 months and longer.
Remember, the goal isn’t to save as much money as you can by not spending. The goal is to make decisions that improve your quality of life. By making decisions based on what gets you closer to living the life you desire, you can start to make financial decisions you are proud of. (For more from this author, see: 4 Tips to Master Your Personal Financial Plan.)
It Takes Time to Get it Right
Where did you first learn about money? A class at school, or when you opened your first account at the bank? Most of the time, we learn about money by observing and experiencing life with our parents. We call these events “money scripts.” Many people go through life without confronting their money scripts. If left unchecked, our money memories can have a profound impact on our relationship with money and ultimately how we spend or save it.
Changing how you think about money isn’t something that will happen overnight. According to Brad and Ted Klontz, authors of Mind Over Money, the best thing you can do is acknowledge the money scripts in your life and how they affect the decisions you make. By realizing how these scripts affect your decision making, you can begin to change your behavior. Some suggestions from the book include writing down your early interactions with money, as well as practicing meditation to help you change your behavior towards money. (For related reading, see: Test Your Money Personality.)
Putting it All Together
It’s time to sit down and put everything together. If you want to be successful long term, it’s a good idea to have an easy-to-follow system, have checks and balances in place for making mistakes, and promote communication among partners.
One of my favorite Chinese proverbs says the best time to plant a tree is 100 years ago, the second best time is today. How you spend your money affects everything you can do financially. If your budget isn’t helping you get closer to the things that are important to you in life, it’s time to leave it in the past. Instead, focus on finding the best way to make your money work for you.
(For more from this author, see: Make Better Financial Decisions With These 3 Tips.)