Why Budgets Build Bad Habits...and what I do instead

Simply put...

Budgets are retroactive.

Peace-of-mind planning is proactive.

Let me explain...

Imagine you go to a restaurant, and you drink all of the water in your glass. Then you wait and wait and wait and grow increasingly thirsty until you feel like your throat is made of sand paper. The waiter finally comes by to fill your glass and you are relieved of your thirst endured agony. That's Budgeting. 

Now...

Imagine you go to a restaurant, and you drink half to the water in your glass. Immediately, before your throat ever gets a chance to hint at ever feeling dry - BOOM! Your glass if full. Oh yeah! #win Your glass never goes less than half full, you never have to twiddle your parched little fingers to get a drop of relief, you are always abounding with refreshment. That's Peace-of-mind planning. 

In other words, 

Budgets = Drain you (a.k.a. living paycheck to paycheck)

Peace-of-mind planning = Replenishes you. You are overflowing. 

Budgets also never work. Unless you're an accountant, who wants to sit there saving receipts or looking backwards on your life just to deprive yourself of things you enjoy (coffee in the morning, eating out with friends, badass new art supplies -- that last one's my personal fave!). Whether they're online tools that "automatically" budget for you, or manual receipt-saving, they look backwards on spending rather than forward on living.

Here's what I do...(I haven't budgeted for about a 2 years now)...

:::drum roll:::

Peace-of-mind planning...

Step 1: Decide on the things you love and give you joy. That are "worth" spending time and energy on because you love them.

Here's a helpful exercise: What's the last purchase you made that was a little more than you thought you could afford -- a splurge if you will -- and you felt awesome about it? You told all of your friends, you can't stop thinking about it, and it will serve you many times over. Maybe it's a brand new shiny convertible, a dream dress that fits perfectly, a huge micro loan to a woman in the Philippines that can now run her business because of your generosity (that last one's mine again :)

Put those things first. For me it's saving like crazy for a house, traveling, and art supplies. I put those things (and my dreams) first. 

Step 2: Separate the things you love and give you joy from your obligations. 

Why do you overspend? Same reason why you over eat. Probably because you have only one checking account. Not because your will power is so awful or you're such bad person. But because the chocolate cake is next to the low-fat yogurt, and -- of course! -- you're going to eat the cake.

I have all of my "dream"/"nice-to-have" money (the stuff from step #1) in separate accounts from the stuff that I "must-pay." Having both my "nice-to-have", savings, and dreams, in the same account as my "must-pay" expenses is, again, like having chocolate cake in the house next to the low fat yogurt while trying to lose weight. It's not going to work. You're going to eat the cake. Don't fool yourself.

You can figure out what your dreams are, how much they'll cost, how much you want to save, how much you have to have to survive, and then separate them.

Step 3: Set it up and forget it. 

Put numbers on each of these categories: Dreams, Savings, Must-pay expenses, and Nice-to-have expenses. Then put each bucket in a different account. 

Here's an example -- notice how the accounts at the bottom:



The example above is an example of what I do. I automate direct-deposits to go into each account, and only carry the Nice-to-Have checking account debit card in my wallet. This way, I'll never go over (I'll never eat the "chocolate" cake).

Bonus! Go for the dream!

I took it one step further by also figuring out how 3 scenarios: 

1- A survival scenario = given my current expenses what is the bare minimum I would need in order to not live on the streets. 

2 - A realistic scenario (the example above) = what is more likely, and I'm not just eating ramen noodles.

3 - My dream scenario - what I wish my cashflow looked like. Notice how my housing is $0, that's because I wouldn't pay for housing in this scenario (because my tenants would, or my house would be paid off), and how there's no debt and a ton of savings and dream spending. In my 'dream' example I'd also be making 170% times more. 


This gives me a goal to aim for, a way of looking forward to filling the glass before the water runs out. 

Extra Bonus: Emergency Savings

At the bottom of my peace-of-mind plan I also have how many months I could live off of my emergency savings if the survival scenario came true. In this example it's 5.1 months:



That's another proactive peace-of-mind win that puts things in perspective. 

Through proactive planning, I've relieved the pressure from having the "cake" in the house, started actually seeing what it would look like to live my dream life (and am working words it because I can see the "finish line" clearly), and have built a realistic grasp on my safety net should there be an emergency. Take that retroactive budgeting! Boom!

The numbers above aren't my own (I simplified them a bit for your viewing pleasure), but they are from the guide I designed for you...



A little bundle of awesome designed to start you on a path to growing your money tree
You can get the Guide -- where you can plug in your own numbers in the template above -- videos, step-by-step lessons, and my real life examples on money management and managing money stress happiness. 

Here's a sneak peak of the checklist -- the foundation for the course...



 


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