Have you drawn up a detailed budget and are struggling to keep to it? According to an article in the NYT*, it would be best to just give it up. Well, not exactly. But it does say that keeping to a strict budget might not be the best way to go about spending less or saving your money. The money and pyschology experts they interview say that a budget can be like a diet — it doesn’t often last long and may just end up with you standing at the freezer late at night devouring a quart of ice cream right out of the container.
It’s human nature, they say. We generally have trouble following through with our “best-laid plans.” And after a long period of focusing on restrictions — we binge. Compounding the problem is the abstract nature of credit cards and such. Watching cold, hard cash dwindle is far more painful and thus more effective in reigning in our spending.
Well, doesn’t this just turn everything on its head! Drawing up a budget or “spending plan” is supposed to be that tried-and-true first step to financial freedom, isn’t it?
So what’s a budgeter to do?
Since self control just won’t do the job, mental tricks and other strategies should be implemented, they say. For one, automating anything you can. A 401K plan that deducts automatically from your paycheck is an excellent example of this. The less say we have in the matter, the better, apparently!
After becoming more conscious of your spending habits through your own methods or a money-tracking site like mint.com, experts say having a positive goal, like saving for a vacation, is the way to go. Focusing on something we want, rather than restrictions, is a far better motivator, they say.
Another strategy they recommend is to divide your money into separate mental accounts: one being for “entirely discretionary or luxury spending.” According to one psychologist, spending a portion of your smaller “fun” account is far more meaningful than just taking it out from your entire monthly budget.
So, being more general about the whole thing is recommended here. If you want to cut spending, they say, rather than budgeting every little thing, just attack a few big categories where you can make the biggest difference. Work backwards, they say. Decide how much you need to save for something, like retirement or other goals, and then work with what’s left over.
So what about the issue of the abstract nature of credit cards and other modern methods of spending? A new wallet will be for sale sometime in the near future that gets harder and harder to open the closer you get to your spending limit (it will be electronically wired to your bank account).
What do you think? Would something like that help you stick to your goals? What about the other strategies?
*Source: Sustainable Money – Tara Siegel Bernard on Why Budgets Don’t Work – NYTimes.com
I agree with the automatic deductions. We have been doing that for about a year now, and we don’t even miss the money from our paychecks. Best of all, our savings account balance is growing.
As far as budgets, we are still trying to find what works best for us. I am curious to hear what others have to say.
It’s a case of out if sight out of mine with automatic deductions. When the money is moved off to another account it’s not burning a hole in your pocket.
Budgets can be different things for different people. You have to try out different types and go with what actually works for you.
I’m one of the people this post was geared to, lol. We stopped binging after we created fun money accounts like you mentioned. Mine builds up and when I binge it takes a hit without me feeling guilty. 🙂
It’s a great idea. With a binge account you get to have fun with the money but you also control how much of the money will be spent so you don’t go overboard.
You can develop the most thought out budget, but a tool is only as good as its user. I agree that having a budget could be too restrictive for some people and could potentially backfire.
That’s why I am an advocate for developing good money management habits that are based on self-control, discipline and awareness.
It’s so true. Some people can track every little expense and keep categories on everything — and it works for them. That’s totally cool but wouldn’t work for me. We’re a lot more general in our budget.
Goals are the key. It doesn’t even matter what the goal is. It can be getting out of debt, buying a car, taking a vacation, buying a house or making your first million. If you’re working toward your goal it becomes easy to figure out what is and isn’t important as far as other spending. This, in turn, makes it easier to stick to your budget.
It took me a long time to figure out how important goals are. Without them you just kind of float out there. With a concrete goal you have concrete action.
I try not to think of my money as mine. And put it into savings as soon as I get it. My 401(k) plan, my Roth IRA, my house-hunting fund, etc. Then I track the rest of my budgeting on Adaptu.
Sounds like a great plan.
My control consists of automatic payroll deductions for my 403B, IRA and Roth IRA. I also set up an automatic mortgage payment that guarantees that the mortgage will be paid off by the time I retire. That accounts for about 38% of my gross. In other words, I operate on autopilot! We live on the rest and still can vacation.
Awesome!
I’ll be honest, the last couple of years I always said I would contribute to my IRA’s but when it came down to it I didn’t do as much as I wanted to.
Now, I have a certain amount coming out of a savings account to go into a retirement account to make sure that I have a specific dollar amount put aside.