How To Create A Budget Without Depriving Yourself
Budgets are like diets: people go on them with the best of intentions, but they rarely stick to them.
Why?
Because they make us feel deprived.
We view budgets as temporary financial punishments. They are something to be endured.
Once we go off them, we splurge and erase the gains we made. This is why budgets are so frustrating.
A more effective approach to budgeting is to focus on changing your habits.
Nothing is worse than nickeling and diming yourself to save money. It makes you feel resentful instead of feeling empowered.
People think short-term budget cuts will result in lasting changes in their financial standing. Not true.
You can only permanently change your financial health by committing to long-term changes in your spending habits that are tied to the purpose of your ideal lifestyle.
If you are looking to save money you can try the more common “cash diet” (or, as I like to call it, the “cheap method”) or a less conventional one I like to call the “frugal method.”
The Cheap Method
When most people want to save money, they choose the “cheap method.”
This means they make budget cuts across the board regardless of how important something might be to them.
They nickel and dime themselves. They waste time clipping coupons or chasing sales at stores instead of saving even more money by coming to terms with their overall spending habits.
In the process, they make themselves miserable.
It’s like being on a crash diet.
Sure, counting every calorie or drinking some weird juice blend may lead to radical weight loss in the short term, but in the long run, it just makes you so miserable that you quickly revert to your old habits and erase all your progress.
The same is true with trying to save money using the “cheap method.” A cheap person pinches every penny regardless of their needs or wants. They save money for the sake of saving money.
They are willing to withhold their spending even if it means not fulfilling their passions or even sharing with their closest friends and family.
Those with liberal spending habits get easily discouraged using the “cheap method” of saving money. When they give up and stop saving, they often go back to their old ways and blow even more money on stuff they really don’t need!
The Frugal Method
The “frugal method,” on the other hand, prioritizes your spending according to your needs and wants.
Instead of across-the-board cuts, spending reductions are based on your passions, interests, basic needs, and overall life priorities.
The deepest cuts are made to expenses that are unproductive in terms of helping you achieve your goals. In many cases, they might even be eliminated.
For example, I eliminated my “drinking” budget (I’m being honest with myself and you) of $400 a month for an entire summer a year after I was laid off when I was 26. I redirected that spending toward paying down my debt.
And it’s not all about decreasing spending. Reduced spending in unproductive areas can enable you to increase in spending on your most important “must-have” priorities and spending habits that can help you live your purpose.
Using the Frugal Method
Disclaimer: I am proudly frugal. It’s one of my core values.
Now I want to teach you how to create a budget using the frugal method.
Rather than penny-pinch to save more money, here are some strategies for creating long-term spending habits to help you on the road to financial independence, while still enjoying your most important priorities in life.
1) Make a list of all your recurring fixed monthly expenses.
These are expenses that are the same or approximately the same amount every month like your:
rent or mortgage
car payment
student loan
cable bill
phone bill
Netflix/Hulu subscriptions
gym membership
utilities
insurances
any other fixed expenses you pay on a monthly basis
To get started quickly, look at all the bills that are automatically deducted from your checking account each month first.
Put these monthly expenses in order from the largest dollar amount to the smallest.
2) Identify which ones you can cut immediately.
Unless you are already a fairly frugal person, there are always one or two monthly expenses you can cut right away. These are expenses that are doing absolutely nothing to help you achieve your goals and are easy to live without.
Once you take a look, you’ll likely find something you aren’t using all that much or something else you’ve considered getting rid of before, but haven’t until now!
3) Negotiate a reduction for each one of your remaining expenses.
You’d be surprised how many different ways there are to save on the rest of your monthly expenses.
First, negotiate with yourself and come up with at least three different ways you can reduce each expense, no matter how dramatic they may seem to you.
Second, call each company to ask for lower-cost alternatives or threaten to switch to a competitor. It never hurts to ask. Learning to never accept the given price is a great habit to cultivate!
I save around $200 a year using this strategy, and several years ago I was able to save $1700 a year!
If you are doing this for the first time, I’m confident you will save a nice chunk of change for a couple of hours of work!
4) Make a list of all your irregular monthly expenses.
You have other regular monthly expenses that aren’t fixed like:
spending on groceries
eating and going out
video games
electronics
clothes
gas for your car
car repairs
home maintenance
stuff for your pets
Calculate your average spending over the last six months for each expense.
Put those average monthly expenses into a list from largest to smallest.
Negotiate with yourself again and look for expenses that can be reduced or eliminated.
5) Choose 3 “guilt-free” expenses and then look for ways to reduce the rest.
Here’s a recommendation you don’t often hear when it comes to managing your personal finances: identify 3 “guilt-free” expenditures that don’t require any spending reductions.
These represent spending on your core needs, your “must haves,” your passions, or your goals.
I’m not recommending having an unlimited budget for each of these expenses, but don’t feel guilty about spending money on them either.
This is the heart of using the frugal method for managing your money: spend on your priorities, but reduce spending on anything you can live without or that distracts your from your goals.
This method of budgeting also focuses on cutting spending from a “habit” perspective and not torturing yourself each and every time you spend money.
Any cuts you make to your spending are rooted in your purpose and goals, so you have a clear motivation for making those cuts.
If you want to learn how to create a budget to identify the gap in cost between your existing lifestyle and your ideal lifestyle, download our free lifestyle calculator.