Let’s face it no one likes to budget. You feel like you are being constricted and you have to be frugal and deny yourself the ‘luxuries’ in life.
Besides, why should you budget? You earn good money, you shouldn’t have to track every cent and count how many smashed avocados on toast you have a week!
Anyway, we all know when we deny ourselves something we crave it more. If I said, “no more chocolate (or whatever) for the next 10 days!” By day 5 or 6 you will be craving it. You will find it really hard to stick to your good intention and will probably succumb; then beat yourself up for being a failure.
But, if you have a clear goal and reward at the end of day 10, then your mind will go, “hey, I can do without chocolate for 10 days to get into that amazing dress/Bluetooth speaker/whatever.” That is a different story, that is the Pain-Pleasure principal at work.
So, STOP thinking budget, think Money Plan instead.
It’s all about making smart choices, having the lifestyle you want (you do have to work at it) and having a very clear reason why you are making the changes. That way your internal child (who is all about pleasure) will co-operate with your adult mind who wants to be sensible.
Forget Wants and Needs!
Yes, I did just say forget Wants and Needs. Why?
Because the thinking around this is all about being frugal.
Look at it this way. Everything we spend money on is to fulfill a Need. We tend to use financial strategies to fulfill Needs when we could use non-financial (or lower cost options).
Understand the Need then look at how you fulfill it. Radical thought isn’t it, but it works.
We have been taught to know the difference between a Need and a Want. Basically, Needs are the necessities of life and Wants are all those extras that make life a little easier. Traditional budgeting says If you want to cut back your expenses, you start with the Wants. This is a very logical and accounting-based concept which does work if you are in financial strife and you have to pull back fast. The frugalists love it, but does it really work as long-term strategy to become financially secure? We don’t believe it does.
We much prefer the Behavioural Economics approach
This is how Sarah Newcomb puts it:
“Every decision we make is an attempt to meet a Need. We know we don’t have to have a lot of the things that we buy. We want them because we believe they will help us to meet some deeper Need inside us.”
The way we want to think and a skill we must learn, is how to stop discrediting our Needs by calling them Wants. We love the reaction we get in our role as a financial relationship coach when we say to a client it is perfectly OK to have someone come in and clean your house, so you can have more time with your children. The look of amazement on their faces says it all, they really didn’t think they were ‘allowed’ that as it is a ‘luxury’.
I bet that got you thinking about your own spending didn’t it, but wait there is more…
“We must learn the difference between a Need and a Strategy.” What on earth does that mean?
Let’s look at an example. Cut out the daily coffee and you will save $1,500 per year; sounds great. But what Need is the daily coffee fulfilling? If it is simply a coffee fix, then you can reduce your spending and have one at your desk (from the company coffee machine) or make it at home.
But what if the Need is the walk to the café, chatting and meeting others in the line? If your Need is the social connection and break from what you are doing, then cutting it out isn’t going to work. You have cut an expense, but you have an unfulfilled Need. So, you need a new strategy to fill the Need.
A different strategy could be, asking a colleague to have a break with you and have a chat or get outdoors and go for a walk – and why not take some water with you.
Can you see how this approach takes away the feeling of depriving yourself?
Here’s a bonus for those of you in a relationship. Needs are universal which means we all have the same Needs, we just fulfill them in different ways. So, next time the conversation about money with your loved one gets a little heated, take a step back and ask them what Need they are fulfilling.
Keep digging until you find the real Need, that is when you will get the ‘Ahaa’ moment and understand why they choose to spend in that particular way. Then you might look at different strategies to ensure their Need is met.
An example of this may be, “Argggg, we need a new washing machine, this one takes me ages and I never have time for anything else!” The real Need here may be more ‘me time’ or ‘together time’. A solution may be to send the laundry out and spend that time you saved doing something together or individually.
Now it’s your turn, think about how you spend your money, pick a couple of items and drill down into the Need. What other choices could you make that would reduce your spending but still ensure your Need is met?
Better still, click this link and book a strategy call with us and we can talk more about you and your money. And even better still, it’s free!
If booking a call isn’t your thing, drop us an email and we’ll be in touch.