As I’m sure you can already guess, one of the most common New Year’s Resolutions is to stick to a budget. This is a terrible goal.
I completely understand where people who set a goal of wanting to “stick to a budget” come from. In fact, the real, underlying motivation for the goal is something that I want to get better at as well this year since it will be the first full year that Amanda and I will be married and throwing another person’s income and spending habits into a financial situation can make things difficult to learn. It’s easy to know where your money is going when it’s you alone, but once you add multiple people who are earning and spending, things become much harder.
But, that doesn’t mean that it’s a good goal. Saying you want to “stick to a budget” is WAY too vague.
Sticking to a budget is an idea or a concept without an action plan. Setting process goals for how you’re going to reach the outcome goal of sticking to a budget will take you a lot farther towards accomplishing what you really want to achieve – being more intentional with your money, wasting less of it, and making sure it’s working for you how you want it to.
Achieving Your Financial New Year’s Resolutions
Over the course of the next three weeks, I’m going to give you some ideas and insight on how you can be successful at achieving your financial New Year’s resolutions. This will include how to stick to your budget, paying down debt, and saving more – the three most common resolutions relating to personal finance.
As I mentioned above, you may have set these resolutions with good intent but you probably made them way too vague and didn’t actually think through setting up a process to make sure that you’re successful at accomplishing them. If this is the case, then you may have even already given up on them just a couple of weeks into the year.
I want to give you some of my ideas on how you can be more successful at achieving your goals by putting some systems and processes in place to make things easier on you.
Getting Started
Chances are that you don’t have any sort of budget in place and that this is something new for you. I like the idea of making it as easy on yourself as possible to start out. If something is insanely easy, then you’re more likely to continue doing it. On the flip side, if it’s insanely easy then you might not feel like it’s worthwhile – that’s wrong. Doing things that are easy helps you to build a habit that you can then expand on to help you reach your goal. And if you’ve had a budget in place for a while but you want to get better, then that’s awesome and I think the ideas I’m going to share here can be beneficial to you as well.
After seeing all the rage about the book Atomic Habits from James Clear last year, I listened to the audiobook at the beginning of this year. Atomic Habits has a ton of great, applicable takeaways for anyone who has a habit that they want to build and/or goal that they want to achieve. My favorite part about the book is that Clear not only provides the theory behind building better habits and breaking bad habits, but he also tells you exactly what you can do in your life to apply the theory.
Over the next three weeks (and maybe year) I’ll probably be referring to a lot of the concepts that Clear outlines in Atomic Habits because I think they can be extremely helpful and practical for those who have set goals to make their financial lives better.
“You do not rise to the level of your goals. You fall to the level of your systems. Your goal is your desired outcome. Your system is the collection of daily habits that will get you there.” – James Clear, Atomic Habits
You may have set a goal of sticking to a budget in 2020, but what does that really mean? What does the system of sticking to a budget look like? What does the outcome of sticking to a budget look like?
I think to most people it probably means being more intentional with your money, spending less, and saving more or paying down more debt. But, you’ll never accomplish these goals if don’t have a great system in place to lean on along the way. We’re going to start with how to create a system for “budgeting” / tracking your money / creating a spending plan / however you want to phrase it because this will be the backbone of your personal finances that will allow you to be more intentional with your money and pay down more debt or save more.
Spend less time focusing on outcomes and more time focusing on the habits that will lead to the results.
5 Tips To Achieve Your Budget Resolution
Here are five ideas that you can implement in your own life right now to help you get started on the right foot and make sure that you stick with your budgeting resolution throughout the year.
1. Start With Tracking Your Spending
Don’t start with budgeting or trying to cut back and not spend money.
I think that spending a month or two of tracking your current spending habits and seeing where your money goes can give you a lot of insight since it will be way easier than trying to create a full-fledged budget and trying to figure out where you can cut back.
If you can commit to taking a couple of minutes each day or each week to track your spending, then I think you’ll get a really good idea of where your money is going and where you feel like you’re wasting money and can cut back and save. Tracking all of your spending might sound like a daunting task to you, which leads me to tip number 2.
2. Automate As Much As Possible
I like the idea of automating as many good financial habits as possible (and it’s also something that Clear talks about in Atomic Habits) because it makes your life easier and helps you to ensure that you’re going to make progress even when you don’t have the motivation or time to do the things you know you should. There are a lot of great, free and cheap tools out there that you can use to help you begin with tracking your spending, but it will still take a little bit of work from you.
Some tools that I can think of off the top of my head are EveryDollar, Tiller Money, Mint, and a good old fashioned Excel sheet. A lot of bank accounts will even help you categorize and track your spending. Don’t spend too much time finding the perfect one – you can always switch later. The key is to get started! Do a little bit of research on your options, pick the one that feels right for you.
I want to be sure to note that automation also includes automating bill payments, savings, and debt payments in addition to helping you track your spending. Automating contributions to your savings account that are taken out of your pay before it hits your bank account puts the money out of sight and out of mind while making sure that you’re paying your bills and debts automatically can save you time as well as money in the form of late fees and interest payments.
3. Start With The 2 Minute Rule
This is a concept that Clear outlines in Atomic Habits to help you get started on the right path, but that he notes a lot of people may see as worthless at first. The idea behind the 2-minute rule concept is to boil down the habit that you’re trying to build into the most basic step that’s as easy as possible to accomplish. Some 2-minute rule habits that he mentions are simply putting on your gym shoes each day to build a habit of going to the gym and reading one page of a book to build a habit of reading each day.
To build a habit of being more intentional with your money, you might just start with logging into your bank account each day or opening your expense tracking spreadsheet or software. It doesn’t need to be anything more than that. If you can start with doing something as simple as that on a consistent basis, then you’ll find it much easier to start creating a habit to build on that you can stick to and that will help you become successful.
It may sound silly at first, but starting with something that’s really simple and then building on it can go a long way. Clear calls this “mastering the art of showing up”.
4. Set A Schedule & Use a Habit Tracker
This is another concept that I got from Atomic Habits that I think can be really useful for those who want to be more intentional with their personal finances in 2020. Tracking your spending and keeping a budget can be like getting your teeth pulled for some people. Hopefully you’ll find that using one of the tools that I mentioned above will help make things a little less burdensome on you, but that doesn’t mean they’re going to do everything for you. You’ll still need to review the information and decide what actions to take based on it, which means that you’ll need to develop a habit of checking it consistently.
Using a habit tracker can be helpful in this area because it’s a way that you can hold yourself accountable and get consistent feedback on how you’re doing. A habit tracker could be in the form of a calendar that you keep on your wall or your desk where you can put an X through each day that you complete your desired habit, a simple spreadsheet that you can create where you can mark off each day, or even a piece of paper. Pick the format that works best for you, but no matter what it is you have to be sure that it’s something that you’ll see consistently and be reminded by to complete your habit for the day. A couple of rules that Clear gives to help you be successful with habit tracking are “don’t break the chain” and “never miss twice”.
I’d recommend tracking your spending either immediately at the time that it happens, daily, or weekly. I think this really depends on what you find works for you and what you’re going to stick to. Tracking your spending as it happens would be the most ideal because it would take the least amount of time and effort. All of the tools that I mentioned above should be available as an app on your phone so it would be as simple as taking a minute to pull out your phone, pull up the app, track what you spent, and then go on your way. However, I can completely understand why you might see this as being inconvenient.
I think the next best thing that you could do is to set aside a little bit of time each day to track what you spent. This shouldn’t take much time at all but can help you to start building a great habit and becoming more aware of your spending patterns.
If tracking your spending daily seems like too much for you, then try setting aside time every 3 days or every week to dedicate to it. This is obviously going to take more time at once than tracking on-demand or daily since you’ll be going through a lot more transactions, but might be a better option if it fits with your personality and lifestyle better. I wouldn’t recommend setting a goal to track spending that’s more than one week in-between because it will become too burdensome and time-consuming to try and categorize everything from more than one week at a time.
5. Combine All Spending Into One Account
Another way that you can make things easier on yourself to get this habit started is by combining all of your spending into one account, at least until you get the hang of things. If some of your expenses come from your checking account and you put some other things on a credit card and maybe even others on another credit card (and maybe you even have a spouse who puts some things on their own card), then consolidate it all to one checking account for now.
Only having to worry about one account will make it so much easier for you to track your spending and see where your money is going and what your overall cash flow picture looks like in one place. You’ll be alright without maximizing your credit card points for a couple of months and you’ll actually be better off in the end because you’ll have a better understanding of your overall cash flow situation and you’ll have momentum in place to transition from just tracking your cash flow to actually budgeting.
Start A Simple Budget
Once you’ve got a great system for tracking your spending in place and you’ve become aware of your spending habits and where you can cut back and be more efficient, you can actually start creating a simple budget. At the very basic essence of a budget, you’re going to show the income that you have coming in and the expenses that are going out (and hopefully your income is more than your spending).
Remember, our goal is to start simple, easy, and sustainable so that we’ll be more likely to continue and we can build on our habit. Don’t create too many categories in your budget for now – you can do that later once you’ve gotten into the swing of things and you feel more confident and comfortable with budgeting. You can even start with only 3 categories if you want – something like savings, fixed expenses, and variable expenses.
Fixed expenses are things that you have to pay no matter like your mortgage or rent, your car loan, your insurance, and your utility bills.
Variable expenses are things that can change from week-to-week or month-to-month and that are flexible and that, for the most part, you can control. These are things that you spend money on like groceries, gas, clothes and shoes, your daily coffee run, entertainment, and eating out.
Once you’ve gotten the hang of a 3 or 5 category budget and you want to drill down more to see specifically where your money is going, then you can create more categories to track.
Skills That Last A Lifetime
Keep in mind that you’re not building these skills for the next couple of months of just for 2020. You’re building skills that will last with you and have a significant impact on your personal finances for the rest of your life. You’re going to suck at the beginning and you’re going to blow through your budget. That’s okay as long as you figure out where you went wrong and make progress going forward. You’re not going to be perfect, but we’re looking for progress, not perfection.
Do whatever is most comfortable for you. You need to make sure to learn to budget in a way that’s easy for you because that’s going to help you keep going throughout 2020 instead of giving up on your resolution by mid-February or earlier.
