If I told you there was a tool that can help you reduce unnecessary spending, solve your money problems, and achieve your financial goals, would that get your attention? Probably. If I told you that tool was budgeting though, your reaction would be more like, “what else you got?” There is just something about the word budgeting that makes it uninviting. And it maybe even more off putting if you actually know what budgeting is. Carl Richards of the Behavior Gap compares budgeting to flossing. We know flossing is great for you dental health, but most of us do regularly only around dental visits, about two weeks a year. With budgeting, we may get started along with all our New Year’s resolutions, but we how long do we keep up?
Our Challenge
So, as I was thinking about a budgeting post, I asked myself. What if there was a way to get most of the benefits of budgeting, without actually doing it like a financial planner? I thought about it, I asked Carl Richards, and I came up with a fun way to start. And I challenge you to try it, starting today! Post about the challenge on our facebook page! At the end of it, you may want to pick up budgeting. If not, I am sure you will learn something valuable about yourself. Now, if you already do budgeting, just like flossing, keep doing what you are doing, you are doing great! But join us anyway, you may learn new things about yourself.
Awareness without a budget
Here is the big idea. If you want to get good at anything, where do you start? The answer is awareness. You need to know your strengths and weaknesses. Only then can you hope to improve your game at anything, from sports to enlightenment. Budgeting is so crucial to financial planning because it brings awareness about your financial strengths and weaknesses, and you can use this awareness to achieve your life goals. I am happy to tell you more about budgeting and how we do it with our financial planning clients any time. But is there a way to increase financial awareness without setting up an actual budget?
Just track your spending
So here is the challenge. Give it a shot. Track your spending for the next 30 days. Yes, that’s it. Don’t worry about what app to use. The best way for the purpose of awareness is writing down each purchase. Just carry around a pen and a little notebook, and each time you make a purchase, write down what you spent and how it made you feel. This is a no questions asked, no judgment exercise. Just behave as you normally would, and simply track spending. If you think tracking your spending affects your behavior, write down how it does so. At the end of the 30 days, go back through your notebook and just notice. Become aware. That’s it.
You can use apps and your phone or tablet if you want. Use Notes or Keep, or your favorite note tracking app. You can use Mint if you like. But I suggest simpler is better for this exercise, so find a little notebook and start writing. Make this fun, challenge your significant other or best friends to do it. Remember when you walked around the office with the step pod or fitbit to measure your steps? A spend-tracking notebook is way cooler.
Focus and awareness
Here is why it works. For each expense over the next 30 days, you take an extra moment to reflect on that spending, just by writing it down. That’s why I suggest writing; it increases your focus and awareness. You can learn a lot about your behavior in 30 days.
At the end of the 30 days of tracking, review your spending notes. You will notice certain habits. Maybe you’ll be surprised by how much you spent on cycling gear, those wine bottles you had to try, or the expensive yoga clothing. And that may or may not be bad. If one of your values is to spend time cycling, wine tasting with friends, or doing yoga, at least part of that spending aligns with your values. If you find it is all of the above though, chances are you are overspending.
What’s Next?
First, make a connection between your spending and your income. Categorize your entries by essential and discretionary. A discretionary expense is something you could do without, or that is more expensive than necessary. Be careful what you determine as necessary, cable or frappuccinos aren’t (what is a frappuccino, anyway?). How large are your essential and discretionary expenses as a fraction of your income? If you find you have a lot of discretionary expenses, there is good news: you have room to improve!
Review the values we have worked on here. Does your spending align with your values? If not you have to consider whether to change your habits or your goals and values. There is no right or wrong answer, and now you have the information to make the change. It may be OK to spend on wine if time with friends is one of your values and you like to share your passion for wine with them. You may just have to consider how this value ranks with others in your life.
Just do it
There are two main reasons why you may want to avoid my challenge. One is that you already know where your money is going. You think you got it under control. I hate to break it to you, but you don’t. When it comes to spending, there is our spending self, great at rationalizing all our spending, and then there is the truth. We don’t know the truth unless we see it in front of us. So I challenge you to take our challenge. The second reason may be that you are not sure you really want to know. But this exercise isn’t about making us feel bad. There is no judgment. It’s really simply about observing our behavior. The behavior may reveal something about our values, and can help us prioritize our goals going forward. So it is just as much about finding what matters to us than it is about changing behavior.
Start our 30 days awareness challenge today! Then read our post 30 days from now to learn what to do next!
Until next time!
Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.
