I’ve been managing my money for years, and frankly, I’m in the small minority of people that really enjoy it. Every loan that gets paid off, every penny that goes into savings…I live for it. But I’m not you. And I’m not normal. I distinctly remember a time when budgeting was not a strong skill of my own, and I always found myself strapped for cash (even after making more money).
Every person has a spending threshold– a certain amount of money they are willing to spend at one time without thinking. When I was first starting out, it was $50. Anything I purchased above $50 required some time and attention. Did I really need it? What was the benefit? What other purchases am I putting off by buying this item? I analyzed these decisions because $50+ was a lot of money. The problem with the spending threshold is that it takes into account how much money you’re willing to spend at one time, but “time” is relative. For me, at one “time” might mean in one day. So I’d spend $50 a day on makeup or clothes for a small hit of happiness, but at the end of the week would be down $350. If you’d asked me to spend $350, I would’ve said no way. So why was I able to spend it over the week without flinching?
I know I’m not alone in this hypocrisy. We’ve all filled up an online shopping cart with multiple serums and sunscreens because you’ve “had a tough week” and “earned it.” We’ve all purchased Smart Water because it’s the only thing you can afford in bulk from Whole Foods and wanted to feel fancy. I also know I’m not alone in feeling bad about these decisions later, when I’m further away from my big financial goals. You feel it when you can’t adopt a dog or supply a down payment for your first duplex because those $50 transactions add up. You’re so driven and intelligent, so why is it impossible to stick to your budget?
Budgeting is one of the most important habits you can foster to improve your wellbeing now and in the future. According to James Clear in his New York Times bestseller Atomic Habits, your habits won’t stick unless you have taken the time to tie them back to your values. The most critical step toward financial independence is establishing your budget philosophy.
Budgeting Philosophy (noun.) – Your closely held beliefs that inform your financial decisions.
Why a budgeting philosophy is important:
You’ll stick with it — You can have the best budgeting apps and spreadsheets in the world, and it doesn’t matter if you aren’t inspired to use them.
You’ll build a budget that aligns with your lifestyle — Your budgeting philosophy serves as a framework for purchasing decisions, ensuring that you’re only spending money on items that align with your values. This will help you avoid the pitfalls of building a completely unrealistic budget.
You’ll hit your big goals — It’s tough to narrow down big goals (and what you really want versus what others want for you). Unless you’re completely bought in, you’ll have trouble overcoming short-term temptation for long-term gain. Your budgeting philosophy will help you identify what goals you’ll truly regret missing, and give you a strong set of values to help you stick to them.
All that said, building a personal philosophy is no easy task (which is why this step is often ignored). Treat me like your budgeting philosophy sherpa. We’re going to do this together. Below, I’ve outlined the 4 key steps to building your budgeting philosophy.
DO A THOUGHT INVERSION.
In budgeting, we spend a lot of time identifying the things we want, but frequently it’s more advantageous to explore the things we want to avoid. My fiance and I thought we wanted to partake in the FIRE movement (Financial Independence Retire Early) — we wanted to save every penny in hopes of being able to pursue our own independent projects at an earlier age.
After running through our thought inversion, we realized that it was significantly more important to us to avoid putting off spending and not enjoying our 20’s. In order to fully embrace the FIRE movement, you absolutely must put off big spending and defer some enjoyment. We had been working toward this goal for years, and this thought inversion was a huge wake up call to what was really important for us. I bet you’ll be surprised with what you find.
Instead of considering what you want out of your money, think about what you want to avoid. The thought inversion will not only help you hone in on your true goals, but it will help you avoid bad decisions. Instead of focusing on winning, focus on “not losing.” It’s incredible how much this shift will inform your decision making. You can read more on thought inversion here.
WRITE YOUR INDIVIDUAL VALUES.
All businesses take a significant amount of time honing their mission and values. There is no “right” way to budget. In fact, there are a number of systems and tools catering to very different strategies. For example, if being eco-conscious is part of your values system, it doesn’t make sense to build a budget where you have to purchase drugstore brands that are harming the environment. At the end of the day, your values will win and your bank account will lose. We need to account for reality, and your values will inform the way you look at that budget.
Values: The fundamental beliefs you hold that inform decision-making.
Here are a few actions and questions to help you start brainstorming your values:
If you had to tattoo permanent words on your body to remind you of the most important things in life, what would they be?
Write “I am” statements or “________ is important to me.” until you run out of ideas. (ex. “I am eco-conscious” or “Saving the environment is important to me.”)
Where do you find a lack of alignment or friction with your current lifestyle?
What values need to be consistently maintained in order to create the lifestyle you want?
Eco-conscious – I will pay more for brands that hold the same values.
Longevity – I value items that will survive long term, and invest in quality pieces instead of fast fashion (even if my wardrobe is smaller because of it).
Healthy – Clean eating is important to me. I will find frugal avenues to get there, but I will not sacrifice my habits for inexpensive Ramen.
As you’re building your values, make sure to include any that will impact purchasing decisions. These values should be your north star, guiding you through the process of only spending money on the things that are the most important and bring you the most joy. Don’t skip this part.
IDENTIFY YOUR BIG GOALS.
Now that you understand your guiding principles, let’s take a moment to set some big-ass goals for yourself. When considering options for goals, I’d recommend considering the SMART framework (below) to ensure the goals are feasible. For example, trying to save 500,000 right out of the gate is probably not an attainable goal. These goals must be items you can accomplish in a short period of time (< 3 months). I know what you’re thinking: “How can I possibly accomplish a big-ass goal in less than 3 months?” The truth is, this will help make sure it’s SMART. If you’ve never saved before, you need to set yourself up for some quick wins to encourage yourself to keep going.
Specific. – The more specific you can get, the more likely you are to stick with it.
Measurable. – How do we know it was complete?
Attainable. – Can you do it? If not, you’re setting yourself up for failure.
Relevant. – This goal must align with your mission and values you identified.
Time Bound. – No goals exist in perpetuity.
Save a $1000 emergency fund
Save up 1 year of pet expenses and adopt your first dog
Make 1 extra payment on your student loans per month
CHECK IN AND REFINE
After you’ve built your budget, make it a point to revisit your philosophy once a year (every 6 months if you are under 25 or experiencing life changes). Humans change in perpetuity, so it’s expected that these values and your priorities will shift throughout your life. Enjoy each season of your life; it will be fun to watch how your budgeting philosophy changes over time!
This is just the beginning. Check back in next week for the next steps in building your budget.