How to make budgeting work for you

Jenny writes in with an interesting question that was originally in this morning’s mailbag, but my answer became long enough that I decided to make it into its own post:

I went through all of the budget exercises in the financial guidebook and created a budget for myself. The only problem is that when I was done and I tried to follow it, it felt really restrictive. I stuck to it for a few months, but it was just miserable. I didn’t like how some set of rules told me how I could spend my money.

I guess I don’t understand how people make budgeting work. How did you do it?

First of all, you’re living by a lot of financial rules by simply existing in our current economy. If you have a job, bring home some pay, and keep yourself from being in too much debt, you’re already playing with a mountain of rules. You’re already making a lot of hard choices about what to buy simply by existing.

Every single one of us would behave differently if money were no object. If money were no object, I’d start construction on my dream house tomorrow, but I can’t because money is a concern. I can’t have everything that I want right now.

Thus, we prioritize. We choose to buy some things now and hold off on other things. This is the normal course of life. We can’t have everything, so we have to choose.

All a budget does is make you sit back and think about those choices. Without budgeting, we largely make those choices on instinct or on some vague idea of where we’re headed.

A budget means that you’ve sat back, thought about your choices outside of the temptations of the moment, and chosen a different path. That path depends wholly on what you want from your life and from your future.

Does it mean you give up some freedom of choice in the moment? It sure can, depending on how exactly you budget things.

The question really is how much is that freedom of choice in the moment worth? Is the ability to buy a latte whenever you feel like it worth giving up a steady path toward your financial goals?

I don’t think there’s a single correct answer to that question. For me, I’ve lived on both sides of that coin and I’ve found I prefer living a life that’s headed toward financial goals rather than a life of increased instant gratification.

Everyone is wired differently, and because of that, everyone should budget differently. An approach that might work for you, Jenny, is to automate saving for your goals. Simply make sure that you’ve got separate accounts for the goals you have for the future and set up automatic transfers from your checking into those accounts.

Then, for a while, use just your debit card for impulsive purchases. You can have just as much freedom as you always had at that point, as you’re still bumping up against the real limit of the balance of your checking account.

Yes, you won’t have as much money for free spending as you once had, but you’ll have the feeling that your money is going somewhere productive and that you’re building a better future for yourself. In the end, that’s the real goal of the budgeting process.