Budgeting is the most effective tool for managing your money. It not only shows how you are spending your money, but it also keeps you from falling into debt. The best part? Following a budget does not mean you have to give up the things you love most in life. Rather, having a budget in place will shed light on what those activities are and how much importance you place upon them.
As a financial coach, I’ve noticed the word “budget” makes many of my clients cringe. They feel like budgeting equals limitation. That following a budget is hard. That they’ll have to give up on the things they want, or that they’ll fail sticking to it. Simply put, budgeting has gotten a very bad rap in modern day society.
Why are so many people averse to budgeting? While the statistics vary, a widely quoted Gallup survey found that only 32% of American households prepare a written budget or use software for a spending plan. Another survey done by Bankrate found that fewer than 40% of Americans have money for a $500 or $1,000 emergency. If you find yourself aligning with either statistic, take a moment and breathe. Stick with me here. It’s time to change your spending and saving habits for the better.
Simply put, to change your habits, you need to change the way you think about budgeting.
Here are six ways to change your mindset around budgeting.
1. Understand your ‘story.’
Take a moment to think about what come up for you when you think about money. Write down all your money beliefs, no matter what they are. Maybe you think that you’ll never get out of debt, or that one day someone will magically pay it off for you. Perhaps you think that money is meant to be saved, not spent. Maybe you think rich people are greedy, or that poor people can’t catch a break. Whatever comes to mind, get it down on paper.
Now, take a look at that list of statements you made. You may wonder how some of these beliefs came to be in the first place. You may even discover preconceived notions you didn’t know you had. Now that you’ve brought these thoughts to the forefront, you have an idea of where you can evolve. Decide which money beliefs are worth keeping, and which ones you can ditch.
You get to create your new money story. What do you want it to look like?
2. Go from fixed mindset to growth mindset.
Let’s keep it simple and assume there are two mindsets: fixed and growth. One will hold you back, whereas the other will enable to you to create change. A growth mindset goes a long way when it comes to setting and maintaining your budget.
Have you ever caught yourself saying “I’m not good at math?” or “I’m not a numbers person?” These statements are perfect examples of a fixed mindset. Most of us grew up thinking this way. In school, if we answered something correctly and were told we’re “smart”, we started to believe that we were only smart if we had the right answer all the time. If we couldn’t do something perfectly, however, we must not be smart in that area.
Conversely, if we have a growth mindset, we’re open to new possibilities. We believe that we can learn a new skill. We know that the only limitation is in our own mind.
While the benefits of a growth mindset are easy to identify, it can be hard to implement in all areas of our life. Some areas take more work than others, and for many people, that area of growth needs to happen in personal finances.
Here’s an example of fixed vs. growth mindset when it comes to budgeting.
Fixed: “I don’t know how to manage a budget.”
Growth: “Learning how to manage a budget will give me more freedom.”
Which one would you rather identify with? Try making a list of your fixed mindsets and transforming them!
3. Set goals with your partner, so you’re both on the same page
Budgeting isn’t something you have to do alone, especially if you’re in a serious relationship. Talk to your partner and create money goals together. This will keep you on the same page when making simple decisions, like how much to spend on your niece’s birthday present, or what kind of gym membership to purchase. It can also help avoid frustration when you’re planning for bigger purchases, like how much to spend on your next romantic getaway, and savings plans, such as retirement or your child’s college tuition.
When you work together as a couple to achieve common goals, budgeting becomes less daunting. Design a budget that works for both of you, and honor that commitment by sticking to it.
4. Don’t think of a budget as restricting, but as freeing!
Budgeting doesn’t have to be viewed in a negative light. In fact, the best part about setting a budget is that you get to decide how much you get to spend on everything!
Don’t want to give up your shopping habit? Incorporate a monthly clothing allowance into your budget. Worried you won’t have enough money to pay for get-togethers or birthdays? Incorporate a savings line for all the parties you’ll be attending that year. As long as you’re making more money than you’re spending, you can make your budget work for you.
Once you’re aware of where all your funds are going, you will begin to feel a newfound sense of freedom. Nothing is in the dark. You’ve decided where you want to spend, save, and cut. Managing your budget can be empowering if you let it.
5. Don’t start with the end in mind.
Budgeting is a tool designed to help you live your best life. If you start with an end goal in mind, it can feel extremely daunting. (Who wants to focus on paying off $100k in student loans?)
Instead, focus on your budget in digestible stages. Track your progress weekly, and celebrate all the tiny wins. Did you stick to your budget in week one? Great! Week four? Congratulations! Soon, your budget will become a natural part of your daily routine.
Once you’ve gotten the hang of it, feel free to adjust your budget whenever necessary. Your earnings will fluctuate, and your savings goals will change over time. Just remember, your budget should never make you feel deprived or overwhelmed. That is not its purpose.
6. Change your beliefs about budgeting.
It’s up to you to decide how you want to feel about budgeting. If you think it’s going to be hard, it probably will be. If you think it’s going to support you in getting everything you want out of life, it will do that for you as well.
How do you change your beliefs about budgeting? First, revisit your story (back to step one) and understand why you feel a certain way about money. Where did you inherit these beliefs? Are you open to changing them?
Once you’ve decided you’re open to making a change in your mindset, write down how you want to feel about budgeting instead. Start to surround yourself with people who share common goals. Join a Facebook group that focuses on budgeting. Talk to your partner about your common goals for the future. Keep an open dialogue about money and notice if you start to feel any differently. Slowly, your outdated concepts will fade, and you will have new money beliefs to look forward to.
If you really want to change your mindset around budgeting, start with one of these areas and focus on it for one week. As you progress, choose another area to work on. Soon, you may even find budgeting to be something you look forward to! Remember, you get to decide what your budget looks like.
Whoever thought that budgeting could look so good?
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