How To Make A Budget That Lasts

If you are going to make a budget that lasts, you can’t just jump to categorizing and slashing expenses—that’s a lot like jumping into a diet and following a certain regime without really understanding the “why” behind your eating—it’s not a sustainable solution. Just like with eating, you have to understand the “why” behind your spending.

This doesn’t have to be a laborious process; just becoming more aware should give you a lot of data in a few weeks. To begin, you should start using Mint (the best comprehensive tracking software I have used). Mint gives you a great overview and long-term tool. Along with Mint, I recommend taking a week or two to keep a journal with your daily spending, so you understand on-the-spot how you’re feeling before and after each purchase.

I have identified four types of spending that cover virtually every single dollar that leaves your bank account:

Avoidance Spending. You’re spending money on something to avoid worry, fear, pain or doubt. This might be your belief that you need to spend thousands of dollars on programs with experts to help your business grow; or that you can’t start working out until you buy an elliptical machine.

The truth is, it never works that way. Whenever you start to see one thing or person as the end-all solution to your problems, you need to go deeper and examine what you hope this expense will “fix” in your life. Once you acknowledge the thought, it often becomes less urgent.

Automatic Spending. This includes most of your spending month in and month out; stuff like rent or mortgage, gas, groceries, etc. Where people get into trouble is over-buying things that they know they can afford, such as take-out food, books or coffee (read my previous posts if you aren’t yet familiar with my addictions).

The goal here isn’t to completely eliminate spending, but to simply be as conscious about it as possible, and to get the best use out of every dollar you spend. This means you have to be aware of exactly how much you spend. Once you’re aware, you can set up a Mint alert to let you know when you’re spending more than you’d like in a particular area.

Impulse Spending. You spend money on something that wasn’t a priority until you were in the store (or online), standing in front of it. There was a time that I couldn’t go into a store like Target or Costco without suddenly realizing that I needed ALL OF THIS STUFF around me.

What I noticed was the less I went into stores, the less I spent. Then, when I was going through a particularly lean time, I learned that if I just stuck to the list, I was fine. Some people just bring the cash they plan on spending. The point is, you never need to impulse buy. If you really decide you want it, you can go back for it after thinking it through.

Occasional Spending. I am not even sure if this is the best term for this sort of spending; this is spending that falls outside the normal budget, usually for something special that you don’t buy all of the time, like (for me) clothes or furniture. Some people have a problem because they hesitate, or never get around to buying the thing, while others have issues because they spend too much.

The reason for why some people put off buying or that some people overspend is that they have placed too much emotional importance in the object. Or, it may be that they haven’t clarified for themselves exactly what will make them happy. I have been at both ends of the scale; when I was less aware of my cash flow, I used to spend hundreds (if not thousands) on home décor because I was trying to achieve a certain feeling in my home, and always thinking the NEXT thing would make it perfect. Now, after having my own lean times and currently VERY aware of my spending, I actually hesitate from buying a lot of things, because I know the item itself won’t give me any lasting feeling. I tend to take a VERY long time to invest in new furniture, because I want to make sure it’s not just a passing fancy. I also haven’t bought new glasses in a very long time because I place so much (too much) importance in how they will make me feel; I can’t believe any one pair is going to look so great on me that it’ll be worth having them, yet I cringe in embarrassment at the thought of having to wear my old glasses out in the real world if I should have some sort of contact lens emergency. So crazy cuts both ways!

All of these spending categories and their distinctions could fall under the traditional term of “impulse spending,” yet you need to find the impetus behind the impulse; otherwise, you’ll never understand the core story you’re holding onto with say, eating out in restaurants versus paying for a personal trainer.

I believe that all expenses can be valid, and everyone deserves to spend money on things that make them happy. The key is, once you start paying attention to the type of spending you’re engaging in, you will not only start spending more strategically--and in alignment with a budget that reflects your goals--you become happier in the process.

Now it's your turn:  What's your biggest challenge with conscious spending?