Let’s talk about budgeting.
Ugh. I know. If you haven’t already clicked away, I appreciate you. But let’s be real, budgeting can suck. The idea of budgeting is all about putting limits on yourself and your spending…which sucks.
Here’s the thing though, budgeting or creating a spending plan, or creating your money system, whatever you want to call it, is necessary when you are starting your financial transformation.
I see a lot of finance bloggers, Tik Tokers, and influencers talk about how you don’t need to give up anything in order to get your financial life together. And to be honest, for the majority of individuals that is a complete lie. Here’s why:
The only way to get out of debt, start saving, and start growing your money is to spend less than you earn. If you are spending more money than you bring in each month, the only thing that will allow you to have a financial transformation is to spend less.
In order to spend less you're going to have to give up something. There is no way to have a financial transformation if you are spending more than you earn.
I love to go to Target. I remember when I was in college, I would drive to Target just to walk around. I found it peaceful and calming. Every time I step into Target, I spend at least $40.00. I don’t know how it happens and I have no idea what I buy, but $40.00 leaves my bank account each time I go.
When I first started looking at what I was spending in a month, Target was at the top of the list for places I needed to cut back on. And that’s exactly what I had to do, I had to stop going to Target as much. I had to give up my peaceful Target trips because I was spending close to $120-$160 a month. That is something that I had to sacrifice in order to better my financial situation.
Now obviously, this is an incredibly minimal sacrifice. But it illustrates my point, in order to stop spending more than you earn, you are going to have to cut back or sacrifice on something.
What to cut back on and what to continue spending on
This is the great thing about personal finance: it’s personal.
The only person who can decide what to cut back on is you. When I work with my clients, I give suggestions on areas that they could spend less, but ultimately they know what is best for themselves.
One of my favorite finance people is Ramit Sethi. He is an entrepreneur and author of “I Will Teach You To Be Rich.” In his book he discusses something called your “Rich Life.” The main concept of a rich life is determining what the most important things are to you, then spending lavishly on only those things and minimally on everything else. He cites one example of an individual who lives in New York City and loves to eat out. This individual spends thousands of dollars each year eating out in New York because they love doing that. In turn, this individual spends very little on decor for their apartment and clothes, because those things aren’t as important to them.
This is the goal of creating a budget, or spending plan, or money system. Determine the things that are most important to you, spend lots of money on those things, and spend little on everything else. This is exactly why stopping my trips to Target was a minimal sacrifice. Because I realized my trips to Target are not that important to me.
Budgeting and money management are not meant to be constricting. On the contrary, they are meant to be tools that allow you to do the things you love. Take a few minutes this week and think about things that are most important to you. After you’ve done that, look at your spending over the past month. Do those expenses match what is most important to you? If they don’t, think about how you can reallocate some of the spending in one area to spend in another area that you love.
(I should note that there are some expenses that we can’t cut back on like our living expenses. Many times these are costs that we have to incur in order to survive.)
Making the Mindset Shift
There are certain finance bloggers and podcasters who believe that in order to become financially stable you should cut back on EVERYTHING. This is unsustainable.
I remember reading Dave Ramsey’s “Total Money Makeover.” He is one of the individuals I’m talking about. In his book he talks about becoming “gazelle intensive” about paying off debt, meaning you should pay it off as fast as possible. In order to pay it off as fast as possible, you should cut back on everything to do so. Well I read that and was inspired to pay off my debt like a gazelle does, apparently, and started looking at ways my fiancé and I could cut back our spending/increase our income. In my gazelle intensity, I told my fiancé that we should sell the TV.
…can you guess how that went over?
It went over poorly. Rightfully so.
Financial stability should never mean completely giving up the things you enjoy. Successful money management can only be sustainable when you are also enjoying your life.
One of my biggest eye opening moments with my finances was when I stopped looking at money as a limit and started looking at it as an opportunity.
Limitations aren’t fun. We as humans don’t want to be held back. Creating a budget that limits your lifestyle never works. But creating a system that allows you to reallocate the money you're spending on unimportant things and put it towards the things you love is the key to your financial transformation.
I no longer go on my peaceful Target runs, and in fact when I do go to Target to pick up something, I order it on the app and have them bring it out to my car when I get there (I know, I’m being extra). The reason I do this is so I don’t even have to go into the store and face the temptation to buy random things. Maybe one day I’ll start spending whatever I want at Target again, but the thing is, I no longer look at my lack of Target trips as a sacrifice. I’m giving up one thing for something better, which I see as an opportunity.
So when you start down the path of your financial transformation, yes you will have to sacrifice something. But YOU are the one who gets to decide what to cut back on and to what degree.
If you are ready to start managing your money better but don't know where to start, schedule a free 30 minute call with me!