Budgeting. It’s amazing how one word can inspire so much dread for so many people. But I’m also not surprised.
Budgeting has been given a terrible reputation. Clunky spreadsheets. Restrictive spending. Cut out everything you actually enjoy in life. And if it doesn’t work, well, there must be something wrong with you, so keep trying until it works, dammit.
Yikes. Sounds like a scene out of Matilda. I can just see Miss Trunchbull standing there with her whip, looking thoroughly enraged.
So! I think it’s time that we rewrite the script. Give ‘budgeting’ a bit of a makeover. Make it a lot more fun and a lot less punishing. (Is that even possible?! You bet it is.)
One of the biggest reasons budgets fail is because they’re not based on reality. They’re aspirational. They’re created in those moments of “I’m changing my life” motivation that happen after you find yourself down a YouTube rabbit hole watching Tony Robbins videos (guilty).
So instead of worrying about what you’re going to spend next month, the first thing is to figure out what you’ve been spending so far. Before you look to the future, look at the past.
This is super easy to do. You want to get a complete list of everything you’ve spent in the last 30-60 days and then do a rough categorization. You can use a tool like PocketSmith to help you see where your money has been going, or you can print out the last 1-2 months of bank statements.
Pick out no more than 10-20 rough categories (e.g. “groceries,” “eating out,” “entertainment,” “clothing”) that would cover most of your regular expenses, and then create a monthly summary. How much did you spend in each category for the last month? What about the month before that?
Now, I want to stop here and say: do this exercise. I’m serious. I’ve taught hundreds of people how to manage their money better, and this is one of the first and most impactful steps we take them through.
This exercise will give you so much clarity around where your money is going and how much you are actually spending. Without it, any attempt to plan or budget for the future can be pointless.
Alright, now you have the actual black and white numbers in front of you, telling you exactly where you spend all your money. This can be a little confronting. It might be scary. Daunting. Embarrassing. That’s okay. All those emotions are natural, so try not to judge yourself. You’re doing great just by sitting down and taking a look at your numbers!
Now you have to decide: what’s really important to you? Do you like how you’re spending your money right now? Does your spending align with your values? What would you want to change?
Highlight the areas where you feel you’re spending too much and where you might not be spending enough. That’s right, I’m telling you there may be areas you need to increase your spending. The point is not to spend as little money as possible. The point is to use money to create the life you really want.
For example, if you say you value health but you spend all your money on McDonald’s … maybe you need to look at that. Could you reduce your spending on eating out, which would allow you to increase your spending by taking up a gym membership?
How can you reallocate your spending to be better aligned to the lifestyle you really want? Notice that we’re not cutting out anything you really care about. We are reallocating money so that you spend less on stuff that doesn’t matter, and more on things that do.
When you get clear on this, you will notice that you will reduce mindless spending and increase intentional spending. This will literally give you more bang for buck because each dollar you spend will go towards something you genuinely care about.
By now, you should have the numbers in front of you and a pretty good idea of how you would like to see those numbers change based on what’s important to you. Here’s the bit that can save you a tonne of time on budgeting — you can take those numbers and automate them.
You can go into your bank account, create a few different sub-accounts based on what you’re saving for, and set up some direct debits so that your savings are automatically transferred into those accounts every single month.
Once you’ve done this, whatever is left over is what you have to spend! And now you have a clear idea of what you actually want to spend that money on based on your goals and values.
You can use a budget for the “leftover” money if you wish, but you don’t have to. Either way, it’s still a good idea to track your spending so you have a rough idea of where all your money is going every month, and you can adjust your plan as necessary.
But can you see how this process gets you to set up a system that works on an ongoing basis? You do the work upfront, set up a system and that system continues to work for you.
Part of the problem with traditional notions of budgeting is that it is too manual. It depends on you sticking to the budget. And the reality is, humans are not robots. There will be months when we just feel off, or decide to spend all our money on emotional eating (… no? Just me?).
If you’re relying on a manual system to keep things under control, that manual system will always break as soon as you stop running it. That’s why you need a system that runs for you, without you there. Hallelujah for technology and automation!
And that, my friend, is how you become a savings machine — without a complicated, clunky, restrictive, boring budget that makes you want to bang your head against a wall.
Paridhi is the founder of financial education platform, SkilledSmart. Their flagship program, Mastering Money, teaches everything you wish school had taught you about money, from budgeting to investing and beyond. Paridhi believes money doesn’t have to be complicated, boring or expensive to get right. You can sign up for her money tips and insights via her email newsletter and on Instagram.