Every personal finance guru suggest the best thing for your bank account is a budget, I think not. Let me explain why.
It takes, in my opinion, a lot of willpower and effort to adhere to the budget, it takes up mental real estate. Consult the budget each time something needs to buy, did we go over the budget for weekly grocery? Do we have budget for that nice jacket? Any money left in entertainment budget for us to go to the movies? Questions like these becomes constant nagging, perhaps drive you to less consumption or, I think, more likely to rocket you away from even pretending to care about the budget.
Build a habit of responsible spending instead of a budget. It will not be as easy to having a budget, but will result in a much healthier financial future, and reduce the stress and anxiety associated with strict budgets, and the best part is it can be done one step at a time.
Knowing how much money coming in and fixed cost is important for what I am proposing, that is all the “budgeting” you will do.
What is responsible spending? It is a spending behaviour that will create the most amount of good for us and the people we care about in the long run. An extreme example would be spending money on illegal drugs would be very high on the detrimental scale while the same money spent on a MBA course would be very beneficial.
We can take a few steps to help us along.
First “Did I do my best to make sure this purchase is necessary?”, evaluate the necessity of an expenditure. For example paying electricity bill is high up on the necessary list. If you are not sure then it’s not essential. Once the bills, mortgages, maybe student loans has been paid most of our purchases are in the “want” category, and these bears a little bit more consideration.
Next “Did I do my best to make sure this is the best use of my money?”. This is a tough question because it is often hard to know what is the best decision. We make decisions based on the information we have, take time to research, explore as many options as we possibly could. We often spend time to find the best deal but rarely pause to figure out if this is what we should spend money on. For example buying a new TV, many hours spent reading about 4K, HDR, 120fps or curved. Little or no time thinking if the money would be better spent invested in retirement fund, save up for that vacation, or spent it on gas for road trips during the weekend, or perhaps the money could go to build a family library. You decide how best to use your money, sometimes we are so set in spending money a certain way we fail to see better alternatives. We have limited funds, explore all the options.
Then “Did I do my best to make sure this purchase will make a positive impact?”. That new car you’ve always wanted will surely make a positive impact in life right? Perhaps not, it will definitely increase monthly car payment, more expensive insurance, maybe more on gas, a huge cost in depreciation, not to mention jealous coworkers asking “You got a raise or something?”. What about that 4500 sqft house? Perhaps you can afford it but how much of a strain would that put on your finances? Other costs like home insurance, possible renovations, heating and cooling bills and property taxes could become unbearable in the long run. Think beyond just the purchase cost, many major expenditures come with many strings attached.
Lastly “Did I make the best decision for the long run?”. When we buy a house we consider all sorts of things, thinking about all decision in terms of longer time helps us avoid decisions that only generate short term or immediate gratification. Like buying a piece of clothing that will be worn once then stashed away never to see daylight again, not the best decision, but if we spend money on high quality clothing and with good care will last us many years and will make us feel great each time we wear it, it may end up saving us money by reducing future purchases. Being cheap usually doesn’t save money, it might end up costing more in the long run. Buy for what it is worth to you, not the number on the price tag.
Did I do my best to make sure the purchase is necessary? Did I do my best to make sure this is the best use of my money? Did I do my best to make sure this purchase will have a positive impact? Did I do my best to make the best decision for the long run? These questions are designed not only to help with spending habits but also to tell us a bit more about ourselves. If we don’t know ourselves how could we be expected to now how to best use our limited wealth.
These are just a few things I find useful and helpful in my life, try them out for yourself see if it helps you. Remember also we are not our own slaves and nothing good comes from forcing ourselves to do things we do not want. We strive for balance for spending habits just like everywhere else in life.