A reader writes:
“My spouse and I need a budget. What should we do?
What type of budgeting do you recommend?
I know it’s not a ‘one size fits all’ world, but how much is too much saving?
It feels a little unsustainable at times but my wife and I make it work. We do love to get fancy and enjoy nice things but a lot of times the budget doesn’t allow it.”
Here’s the dirty little secret among personal finance experts: just about everybody hates budgets. (Sorry, J. Money…)
No matter how many different ways you build a budget, nobody likes to live with them. If you’re responsible for maintaining one, then you know how it feels when everyone else complains about it.
This is not a listicle about the top ten budget apps or their affiliate links. We’re digging deeper to find better ways to live with any type of budget. Once you’re clear on how you’re going to make a budget work for you (not the other way around) then you’ll have an easier time picking one.
The root cause of the problem is our attitudes, not our budgets.
The scarcity mindset
When humans build budgets, we feel constrained by limited resources. “This is how much I earn, this is how much I should save, and this is how much I can spend.” We immediately focus on shelter, food, transportation, and investments. We try to boost our savings rate as high as possible.
What about having fun? “Nah, we can’t afford that.”
The scarcity mindset turns life into a zero-sum game, where everything you “win” means that you lose something else. That type of budgeting only highlights where you’ve sacrificed today’s quality of life for non-discretionary expenses and your future quality of life.
The budget can make you cross the line from frugality to deprivation. Maybe deprivation is a worthy pursuit of a short-term goal (like finding a better job or paying off credit card debt) but it’s unsustainable.
Military families are keenly aware of the line between frugality and deprivation. (Mostly because we have too much experience with deprivation.) Frugality makes you feel challenged & fulfilled. You’re winning, and you might do frugal for a life of philanthropy and legacy.
Yet are our resources really that constrained?
People may not even realize we have a scarcity mindset, especially if you were raised in a dysfunctional family or dealt with childhood poverty. In those situations, with little control over your health and safety, you really may have been in a zero-sum game. (See the note about poverty and “Broke” at the end of this post.) Maybe that childhood taught you to spend all of your money before it’s confiscated, and now you feel trapped by your new budget.
Or maybe you’re still learning to manage your money, and your scarcity mindset was formed by the culture and people in your neighborhood. If you’ve struggled with your finances and recently discovered financial independence, then your new budget might inadvertently cause problems with your old lifestyle– and people will complain that you’re no fun anymore.
Now that we’re adults, we can manage our money to improve our quality of life. We’ll also try to replace old money dialogues with a new mindset.
The abundance mindset
Paula Pant says it best with her theme: “You can afford anything, but not everything.”
Reframe your questions:
“How could I find a way to afford that?”
“Am I willing to work for it?”
“How would I impact my future financial independence if I wanted to have more fun now?”
It’s hard to evolve to an abundance mindset. The first step is to gain enough financial security to know that you’re going to reach your goals, even despite the inevitable surprises & setbacks. It took me several years to appreciate that, and it’s even more difficult when you’re trapped in the fog of work.
Your new mindset starts with shelter, food, and transportation. They’re the biggest expenses in a budget, and anything you don’t have to spend on them can be put toward other goals– whether that’s a better quality of life, or investing for retirement, or simply a night out.
Maybe the obstacles to your fun budget are an excessively large home, or buying convenience food and takeout, or indulging in a fancy car.
Are you held back by those three choices while you’re trying to save for more fun and an occasional splurge on fancy? Are you inadvertently trying to recreate your parents’ living standards now, even if it took them decades to achieve? Are you being suckered into buying the consumer spending shown in social media and advertising?
I won’t belabor the solutions: house-hacking, roommates, living in a cheaper/smaller place, cooking more meals from ingredients, living closer to work, and using public transportation or a bicycle. The entire Internet is filled with those blog posts.
My point is that you might feel constrained to live in an expensive area (because of your job or career), and to spend more money on takeout (because of your working hours), and to endure a horrible commute because of… the job.
All of those expensive problems have solutions, and you can build a better budget for them. Yet maybe the core problem is where you work.
Instead of accepting high costs of housing, food, and transportation because of the job and a scarcity mindset, maybe it’s time to change the job and build your abundance mindset.
It’s not the budget, it’s your job.
I’m not trying to say “Just earn more!” and suggesting a side hustle. That never worked very well for me, either.
Instead, I’m suggesting a long-term plan. Your “side hustle” could be developing more job skills and then negotiating a raise– or finding a higher-paying employer. If those aren’t in your town right now then 2020 has reminded all of us about remote work: maybe you could uncouple “your job” from “your housing location, your food habits, and your commute.” Maybe your office job can be done in a home office as well as a corporate office.
Maybe it’s as straightforward as posting your resume on a remote-work site to pick up projects of a few hours a week. There’s a little money, sure, but you’re also gaining entrepreneurial experience and developing more workforce skills.
Building your tremendous human capital can lead you to an abundance mindset, but you have to find the opportunities. It’s hard to pull your head out of that fog of work for the thinking and the planning, but this problem is worth solving. You’re changing your life to match your goals.
Let’s move on to a different question: is your budget really the problem, or are those problems a symptom of a more severe issue?
It’s not the budget, it’s a communications problem.
It’s one of the most frequent questions in personal finance: “How do I get the people around me to agree with my life goals and my budget priorities?”
Maybe you don’t have a budget problem. Maybe you have communications troubles or even a relationship challenge.
When this happens with friends, then the answer’s relatively straightforward: maybe you don’t have the right friends yet. If they’re willing to change their mindset too, then those friendships are worth keeping. But if they insist on basing their friendship around spending money instead of enjoying hanging out with you, then you need new friends.
With parents and in-laws… well, I never figured out that challenge. You’ll have to try to build your best life even without their support, and hopefully, someday they’ll come around. Even if they don’t agree with your goals or your career path, they should want you to feel happy about your life and they should help you celebrate your milestones.
If it’s your girlfriend or boyfriend then maybe you’re ready to talk about building your lives together and whether your different goals can be reconciled. Compromises shouldn’t involve sacrifices or abandoning your goals to support theirs. Instead, your team plan should accommodate both of your goals and work out the timeline for reaching them.
When a budget problem happens in a marriage, the answer’s a little more complicated: you’ve already committed to your lives together, and now you have to work through the obstacles to make it better. You might have more of a communications problem than a budget problem. Are you both still focused on the same goal, or is one of you more motivated than the other? Maybe it’s better to step back and re-negotiate your shared priorities.
Military families face these issues every day because at least one of the couple is moving so frequently in pursuit of their service’s mission. Dual-military spouses face career-limiting compromises just to be stationed together. Other military families have to let the location dictate one career while the spouse either waits their turn (for years) or finds location-independent work.
That still leaves the conflicts of long working hours and the time spent away from home.
These problems are not unique to military families, either. Veterans and civilians struggle with the same issues– move for the job, or find a new career? Is it worth gutting it out in the job, or are your priorities changing? Is it time for a new job?
Keep talking. Better communications can cure a budget problem. Here are two tactics to consider when you’re discussing the budget.
The Budget Police
The first tactic is: avoid turning into the Budget Police.
It’s very common in the financial independence movement. One of a couple discovers FI and then persuades the other, or one is
a submariner far more enthusiastic about deferred gratification. That money-minded person immediately researches their new resources and starts building a budget. They took the initiative, and the other person is being asked to join the team.
It doesn’t matter whether the new budget is zero-based, or a flexible 50/30/20 plan, or whether it builds sinking funds for every expense. It could be hand-written in a spiral notebook or a multi-tab spreadsheet covering the next three decades.
Unfortunately, the budget enthusiasm can inadvertently set up an adversarial relationship where one person runs the budget and the other person plays along… until they suddenly realize that they’re giving up more than they’d like.
One of you has turned into the Budget Police and the other one is begging for money.
“Begging for money” is when you feel that you need more money for your standard of living, let alone your goals. You’d like to join your co-workers for a monthly lunch or a happy hour, and suddenly that conflicts with your family budget. You want those sports tickets or that TV subscription, but nobody else in your family supports it. You’re maintaining a wardrobe but you’re getting pressure to find it in thrift stores or (even worse) sew your own. The kids make their case for a higher allowance– do you traumatize the next generation by telling them it’s not in the budget? (“Good luck with that.”) The entire family squabbles over who left the lights on, how long a shower should take, or why the thermostat is at the wrong number.
The Budget Police are equally unhappy. The budget is supposed to be a guide, and a roadmap to a goal, but now your partner wants to go their own way. The whole family agreed on it (or at least let you make the key decisions) and suddenly you’re getting pushback. You enjoyed creating the budget (and imagining the possibilities in your new goals) but you never wanted to be in charge of handing out the nickels. Everyone’s shooting the messenger!
The solution? If you find yourself in either role, then switch roles for a while.
Stay in that other role for as long as necessary. Develop an understanding and a sense of greater empathy for what that other person was doing. Along the way, you might discover that you want to run the budget a different way, or use a different method. You might even split up the assignments– one of you tracks expenses and pays the bills while the other does the monthly summaries and handles the income-tax returns.
Everything is negotiable as long as you understand the challenges and issues of the other person’s tasks. If you find yourselves both “begging for money” then you’ll definitely want to implement the second tactic.
Allowances for adulting
The second tactic: give yourselves an allowance.
Bear with me. This technique is deceptively simple yet incredibly empowering.
It’s the same kind of allowance that you may have received when you were growing up– only this time there’s no critiquing or judging. Allowances should be big enough for you to “get fancy and enjoy nice things” without adversely impacting your other financial goals.
Each of you gets the same monthly allowance. If the two of you can’t agree on that then you have bigger issues with your communications skills or even your relationship.
Whether the allowance is $50/month per person or $500/month per person, you both agree to live with the same rules:
1. It’s yours to spend as you wish. The budget categories are “My allowance” and “Your allowance”, and you don’t have to discuss how it was spent. How you handle your allowance is your business, and it’s a judgment-free zone.
2. You can spend it all on the first day or spread it out over the month, but you don’t have to discuss that either. When it’s gone then you have to wait for next month’s allowance. No advances or borrowing allowed.
3. You can spend it all every month or you can save it for a bigger (personal) goal. Again, it’s your allowance. No accounting is required and you can even stash yours in a separate account.
[Note: those rules are for an adult allowance, not for kids. You’ll still want to talk your kids through their emotions, their plans, and their feelings when they make mistakes. Maybe you shouldn’t judge a kid for their spending either, but you’d certainly want to help them discuss it and learn to make better choices. My daughter and I wrote a book about allowances for your money-savvy family.]
If you two adults disagree on whether to spend for a thing or an experience, then whoever wants it might have to buy it out of their allowance.
One rule carries over from your childhood: if you break something, that’s comin’ outta your allowance. I’ve survived many chaotic home-improvement projects, and I can affirm that this part of the system works very well. Hopefully this time it’s part of an adult conversation, like “Well, I wouldn’t do that, and if you break it then it’s coming out of your allowance.”
The adult allowance also… allows… both of you to express your money preferences. If one of you is a spender then you’ll probably use your allowance for
yet another longboard the things which bring you joy– even if you have to carefully ration those opportunities every month to make the most of them.
If one of you is a saver then you’ll gravitate toward personal goals that require a bigger pile of cash, like a milestone birthday or a family weekend trip.
It’s your allowance and your choices. Don’t judge, and you won’t be judged.
The budget’s bottom line
When you add up last month’s expenses and compare them to your budget, you’re not just reviewing your net worth.
You’re also checking your net happiness, and your progress toward your financial independence lifestyle. (“FI gives you choices.”) Your progress might slow down or even wander aimlessly once in a while to enjoy an experience, and that’s the part that helps you stay happy even as you pursue your life goals.
You’re still tracking your spending and cutting the waste. You still get to decide what you value and what’s wasted. If something brings value then you’re willing to work for it, and if it’s wasted then you can cut it back (or cut it out) and still feel as if you’re winning.
Use your budget reviews to adjust your categories & limits whenever it makes sense. Maybe you’ll deliberately choose to spend more on a holiday or anniversary month, or maybe you spend less during summers or winters.
In the long term, as your spending stabilizes and your net worth is on track, then you could decide to change your budget strategy. You could choose to stop tracking every penny and shift to something like the big-picture 50/30/20 budget. Maybe you’ll start in full accountant nerd mode (like me) and track everything to the penny with new categories and monthly reviews… then suddenly 30 years later decide that you no longer need a detailed analysis.
Once you reach FI you might have your spending dialed in so well that you no longer need to track it very closely. If your net worth (or your passive income) continues to grow then you might even ignore expenses under $20/month. (Or under $100/month.) As long as your net worth is more than you need for your withdrawal rate, then you can focus more of your attention on generational wealth and philanthropy.
Maybe that’s your personal shift from scarcity to abundance. Or so I’ve heard…
If you really did grow up in poverty, or if you feel trapped in it, or if you think poor people are victims of their own problems… here’s a way to achieve a deeper understanding of the issues.
My high-school classmate Dana Gold grew up in poverty. (I never noticed, or perhaps she hid it well.) She’s spent the last 40 years working in shelters and community services, and she has a very broad and personal perspective on the issues. (The solutions? Welp, we’re still working on that part.) Dana has tried for years to help more people understand how poverty affects your decision-making skills, and she’s created “Broke: The Game.” It’s a free mobile app and a free PDF of her book about the subject. (You can also buy the board game and the eBook.) Playing the game and reading the book will show you how poverty forces hard choices when you don’t have the mental bandwidth (let alone enough food) to make the best choices.
You might not be able to stop poverty. (Dana’s worked on that for most of her life.) However, you’ll understand the issues and perhaps empathize with people who are still trapped in the poverty cycle.
For another stark example of behavioral economics, the Center for Financial Services Innovation has created the FinX exercise. You can watch the video of how life happens when you’re unbanked, or read how FinX has affected financial professionals, or learn more from the FinX site.
It turns out that people dealing with poverty are solving their money-management problems in logical ways that you’ll never see when you’re affluent. When you’re trapped in poverty then even the traditional choices are expensive. Maybe we Americans need to change that tradition, and CFSI can help you spread the word.
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Yes, the mail buoy is a Navy thing. Don’t get fooled!