- Setting limits on how much you can spend can feel restrictive.
- But achieving financial goals often requires some sacrifice and discipline.
- Personal-finance experts recommend writing a “spending list” framed around your goals, surrounding yourself with like-minded people, and forgiving yourself for mistakes.
- This article is part of a series focused on millennial financial empowerment called Master your Money.
Budgeting is the first task you have to conquer to manage your money well.
To achieve your financial goals, you have to understand your cash flow and your ability to control it.
The truth is that budgeting in the traditional sense can feel restrictive. When you set strict limits on how much you can spend in any one category, whether it be food or travel, it can feel like a huge sacrifice.
The path to achieving financial goals does require some trade-offs, but during Business Insider’s recent Master your Money roundtable, personal-finance experts and professionals discussed how to create a budget that doesn’t feel like it’s holding you back.
1. Create a spending list
Carmen Perez is a personal-finance blogger at Make Real Cents. She said budgeting carries such a negative connotation that she prefers to call it “a spending list” instead.
A spending list is essentially a guide you can follow to align your spending with your values and goals. Write down how much you want to put toward your goal first â€” whether it’s saving more or putting extra cash toward your debt balance â€” and build everything else around that, Perez said.
She uses a zero-sum budget framework for her spending list, which assigns a job to every last dollar of income. While this strategy works for Perez, and helped her pay off $US57,000 in debt, she acknowledged that it can appear limiting for some people.
“I like to say a budget doesn’t have to be super restrictive,” she added. “It’s just a good plan, a financial plan in the sense of a very rudimentary first-level plan for your money. And as long as you understand what money is coming in and what money is going out the door, then you can make better decisions around trying to plan for your goals.”
2. Surround yourself with like-minded people
Sunny Israni is a CFA and the founder and CEO of the personal-finance app Clasp. He has spent over 100 hours interviewing millennials across the US about their money habits, attitudes, and goals to find out what makes someone good with money.
Israni has found that the most important predictor of someone’s financial behaviour is how they operate in social situations and how their friends influence them to spend.
You can have every intention of skipping a second round of drinks at brunch or opting for a cheaper vacation rental on your annual ski trip, but if your friends aren’t on the same page, staying disciplined can be really difficult.
“A budget is essential, but it can be even more powerful when you have that support system of people who share the same goals,” Israni said. “That’s what we’ve seen to be extremely effective and powerful.”
You don’t have to ditch your friends, just make sure they know your boundaries and ask that they respect them.
3. Don’t let a single day or purchase derail you
Just like following a healthy eating plan or an exercise schedule, chances are at some point you’re going to slip up and make a mistake with your budget.
Kelly Lannan is a vice president of Young Investors at Fidelity. She shared a story about her friend, a healthy eater who indulged one Friday night on pizza while out with friends. She felt bad about her mistake, but “instead of stopping there at that single slice of pizza â€” and I know this happens to a lot of us, because we’re humans â€” it’s like, well, that single slice of pizza has completely derailed her from dieting the rest of the week,” Lannan said.
She said it’s OK to make a mistake â€” everyone does â€” but you should never let “any one thing completely derail” your spending, saving, or investing plan. Acknowledge the misstep, and don’t lose sight of your goals.
There’s no use in assuming an identity as an overspender because you exceed your spending guidelines on occasion. Attitude is just as important as action.
Rod Griffin, a senior director of consumer education and advocacy at Experian, added: “Being good with money doesn’t mean you’re perfect with money. None of us are. I think that’s one of the things that we have to tell people to come to grips with: You will do things that you’ll look back and wonder why. But no one’s perfect with money.”