Sunday, 29 December 2019

Why Budgeting Always Fails And How to Make It Work For You

Budgeting is one of the most fundamental skills for financial success and there's a reason that every financial expert out there recommends them. There's also a reason that I have written close to a dozen articles on this blog on different types of budgets already, and no we haven't covered all of them yet. So given that information, you may rightly be wondering to yourself why am I writing an article with the title "Why Budgeting Doesn't Work" because that seems to fly directly in the face of many of the ideas that I have covered in previous budgeting article. I mean why would I write those articles if budgeting doesn't work in the first place? Today I am going to explain why I think budgeting often time doesn't seem to work. And offer a solution as to how we might go about fixing it. 

Recently, some of my offline friends have been asking me what is my budgeting method? They say I've written so many of those budgeting articles already but I never actually say which budgeting method I personally use and that's perfectly true but it's not in an attempt to withhold information or not be upfront with all of you about it. It's because I firmly believe based on my experience working with people on their finances that what works well for one person, in this case, me, may or may not work as well for another whether because the situation is different, or goals are different, or the mentality toward money is different. It could be for any number of reasons and it is personal finance after all, which means there is going to inevitably be some sort of variance to what works for each individual. That's why I write a whole bunch of articles on a bunch of different budgeting methods and let you guys pick which one will work best for you, or at the very least just try one and see if it works and if it doesn't try a different one. 

But my friends' question made me think of another question:

Do We Know What Budgeting Is Trying To Teach Us In The First Place?

It wasn't really a question I had ever considered before but now I'm not entirely certain that all of us realize what a budget is actually designed to do and I don't mean just on the surface level of, hey it's trying to help you control your spending, yes it's doing that but there's more to it than just that and that's what I'm going to be talking about today.

Why Budgeting Usually Doesn't Work And What Are Budgets Trying To Teach Us?

Well, in answer to the first question I think it all comes down to our approach to budgets in the first place, as opposed to the budget itself. Let me explain. When many of us hear the word "budget" it immediately conjures up images of frugality and the need to take away some or all of the things that we spend money on that we actually enjoy.... basically, it's the idea of sacrifice, because for some reason most financial content, at least from what I see, focuses so much more on the sacrifice aspect of achieving financial success as opposed to the rewards of achieving financial success. And don't get me wrong, keeping your expenses low and living the frugal life has many benefits, I'm a big fan of living it myself, but that may not be the best way to inspire people to take the massive action that's sometimes needed to get our financial house in order. And keep them that way.

In my opinion, anyway, is how to be frugal and extremely happy while living your dreams. So the answer to the first question is that it's very hard to get started on, let alone keep up with, something that we don't enjoy or don't feel good about over the long haul. This is especially the case if we don't see much progress early on and if it is your first time budgeting and your financial house isn't in the greatest condition, to begin with, it will likely take some trial and error to get things working moderately well. And that is understandable, it's your first time, of course, you may forget something here and there we all do I certainly did. And then sometimes even we all have a good month where something goes wrong with your car and it breaks your budget in a month when you otherwise would've been okay. That can get very discouraging so we need to find a way to alter our approach to budgeting if we're going to make it work over the long haul.

What Are Budgets Trying To Teach Us?

The obvious answer to the second question and the one that most people will give is budgets are trying to help us to control our spending. And while that is true like I said, they do help us to control our spending the thing I think it's really trying to teach us is how to figure out what is worth spending money on. Because so many of us go through life spending money we don't have on things we don't need to impress people we don't even like or even know in many cases. And what's worse is not only do we not need the things that we spend the money on that we don't have in the first place, a lot of times when we do some self-examination we find that we don't really get that much enjoyment out of any of it.

  • Now, in order to control our spending, we do of course need to know what we're spending money on in the first place because all we're really trying to do is to identify those things that we're currently spending money on that don't really add that much joy and excitement into our lives so that we can limit that spending or find a way to cut it out entirely.

Doing this allows us to both vastly increase our savings rate which allows our money to start growing exponentially very, very quickly and use more of our money on the things that actually bring us joy. This is ultimately how spending becomes controllable for the long haul.  That's why you find so many of these so-called super savers that spend less than $40,000 a year and are really happy with their lives. They don't spend much money sure but the money they do spend is all on things that bring them joy and excitement and for most of us there aren't too many of those things out there, at least not nearly as many things as what we're currently spending money on. And this is the approach that we need to take.

We need to stop thinking about budgeting as a synonym for sacrifice or frugality because when you start looking at a budget in terms of it being a tool to help you figure out what you truly value in life and giving you the ability to spend your money on those things as opposed to all the other things that your money is currently being wasted on, you no longer feel like you're really sacrificing much of anything. Because you've developed enough of that self-awareness when it comes to your spending that you realize what you're giving up is something you don't care about.

If you don't believe me go on Reddit and start talking to some of the people in the lean fire Reddit page

Start asking them what they're spending their money on and why. Ask what they're no longer spending their money on as well as how happy they are with both their financial situations and their lives. You'll find a lot of them that are spending less money on things that they own and more money on things that they can do such as traveling the world, learning a new language or even something as small as starting a garden or just a fun side project that lasts for a little while. And as a direct result of that level of self-awareness, they develop when it comes to their spending habits you'll probably find that a lot of them in that community actually live a good lifestyle compared to the average Joe despite the fact that they're spending less.

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