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Budgeting: A Frame of Mind

My friends used to tease me about how I budget (or, at least, reconcile) every expense in my life. If asked how much I’ve spent month-to-date, I can give a pretty accurate estimate.

Few guys in their mid-20's spend time reviewing and categorizing their monthly cash flows. Until these past few years, I thought I was just a special kind of crazy. Someone has to like this stuff, right!? It wasn’t until I stumbled upon financial planning as a profession that my madness became legitimized. I realized then that a budget is more than just numbers on a page.

In a rare moment of insight, while fielding the usual jokes from friends about my money habits, I blurted out something along the lines of “Budgeting isn’t penny-pinching all the fun out of life; it’s about understanding what’s most important to you, and then putting your money to work to achieve it!” After that outburst they (and I) knew I was heading into the right industry.

The word "budget" has an unfair negative connotation, especially among people my age. You might consider it synonymous with penny-pinching, scrimping, or cutting back. Many also view budgeting as a self-imposed financial limit on doing what they want.

If any of this rings true to you, I challenge you to associate “budget” with more positive constructs such as opportunity, priority, and happiness. At first, it might seem silly to play word-association games. But give it a chance and you might be surprised. Budgeting, if approached with the proper mindset, allows you the opportunity to prioritize your funds to maximize your happiness.

It all starts with a simple question: What makes you happy? There's an old adage, “Money doesn’t buy happiness.” But money does allow people to buy things and have experiences that make them happy. Reflect on what makes you happy, and then determine if you're using the money you have available to achieve that happiness.

When you begin to realize exactly where your money is going, it can sometimes be shocking to confront your spending habits. That’s okay though. In fact, this can be a great thing! Through this exercise, you not only learn how much you're spending, but you can start to question why you are spending. When you learn to ask why you spend, that’s when budgeting goes far beyond numbers and categories. You can begin to focus on aspects of your life that bring you happiness, and reduce or even cut out spending that results in little or no value. It’s simply maximizing your happiness with what you have available.

Yes, I suppose you still have to pay the electric bill every month and doing so doesn’t bring you any happiness, but you’d be surprised how many “necessary” expenses people just pay for and never question why. An example of this would be my friend who recently traded in his sports car for a used sedan. Why? His favorite thing to do is travel. Of course, like many young people, he lacked the money to accomplish this. Or so he thought. Instead of being upset about it and abandoning the notion, he took a look at where his money was going. Not surprisingly, a good amount went towards the car payment. Admittedly, he did like the car; he didn’t end up with a sports car by accident. After some self-reflection and re-prioritization of his expenses, he was able to allocate more towards traveling and having fun evenings out with friends, both of which make him much happier than having a nice vehicle.

Some people want to travel. Some want the sports car. And some want both, and can afford it! Don’t lose sight, thinking this is a lecture on how or where to spend your money. How and where is an easy task for you to figure out, but I would encourage you to take it a step further and examine why.When you look beyond income and expenses and allow budgeting to be a means for prioritizing your happiness, it becomes as ever-changing and adaptable as you.

My friends now understand why I budget to the extent I do…and still tease me about it sometimes. While they enjoy giving me a hard time, some have actually set up budgets of their own and are learning to prioritize how they spend their money. Few are as meticulous as I am, but as I look at my peers, I think we're making progress. And that's a very satisfying outcome for a financial advisor!

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Disclaimer: The information provided here is general and intended as educational in nature. It is not intended nor should it be considered as tax, accounting, or legal advice. Investec Wealth Strategies and its advisors do not provide tax, accounting, or legal advice. We recommend you seek the counsel of your attorney, accountant or other qualified tax advisor concerning your situation.