build a habit, NOT a budget
If you're like most people, you'll likely exceed your spending budget this month (if you even have a budget). After all, only about 32% of Americans even prepare a monthly budget, much less actually stick to it. Coincidentally, this is very close to the percentage of people (36%) who attempt to follow a specific diet in a given year.
Like diets, budgets don't work for the vast majority of the population. But time after time, we're told to eat healthier and budget monthly. So what's the problem?
We KNOW we should change.
We WANT to change.
We are MOTIVATED to change.
But we STRUGGLE to actually change! Why?
While important tools, knowledge, desire, and motivation do not cause change. Only action leads to change. And that's where most of us fail.
We fail to create consistent, daily actions that support our goals.
One of the big problems with rigid diets and budgets is that they don't allow for small changes over time. They require a big change immediately. Which almost always results in failure. Forming a new habit (whether health or financial) takes repetition and discipline, but most of us never repeat that action for long enough to allow it to become a habit, leading to discouragement. We've all tried to implement a New Year's resolution only to have given up by the third week in January. And it's so frustrating! The truth is, change is hard. It doesn't happen overnight. But that's exactly what monthly budgets require of us.
A better approach to creating real, long-lasting change is through small, consistent actions that produce good money habits.
Being mindful about your spending is a skill that takes time to develop. In order to develop that skill, you need to consistently practice good money habits. And as we know, habits don't develop overnight. They require consistent action to develop.
So the starting point for reaching your financial goal is not a strict budget, but that one small action you can complete every day that helps you develop good money habits.
Let's say your end goal is: Save $10,000 for a once-in-a-lifetime trip to New Zealand next year to walk the Path to Mordor. The Standard Approach to a goal like this would be:
Follow a budget to save $833 per month towards the trip
Follow a budget to save $833 per month towards the trip
The problem here is that there are no specific actions to support the goal other than "save". If it was this easy, everyone would do it successfully. The budget is not a magic formula - it's truly meaningless without underlying habits. So to achieve that goal, you need to first decide what small thing you can do every day that will support healthy money habits, and eventually the attainment of that goal.
Here is how this New Approach would look:
Goal: Save $833 per month
Skill: Mindful spending (being intentional about what, where, and why you spend)
Habit: Drink home-brewed coffee (instead of buying at Starbucks)
Daily Action: Make your coffee at home every day for 1 month
Goal: Save $833 per month
Skill: Mindful spending (being intentional about what, where, and why you spend)
Habit: Drink home-brewed coffee (instead of buying at Starbucks)
Daily Action: Make your coffee at home every day for 1 month
This distinction may seem minute, but it's very important. Simply saying "I'm going to spend less at Starbucks" is not enough. You have developed no habits to help you actually achieve this goal. Instead, you could say "I'm going to make my coffee at home 5 times per week for 1 month."
Eventually, that daily action will develop into a habit, to a point where you don't even think about it anymore. And that habit helps you be more intentional about where your money is going, which supports your end goal of a dream-trip to New Zealand.
The key is to stick with those daily actions. And contrary to what you might think, it does not begin with "motivation". Motivation is a fleeting emotion that will eventually leave you. So if you depend on motivation for success, you will be disappointed. Instead, rely on discipline.
Discipline can thrive in the absence of motivation.
While the thought of having enough discipline to prepare your own coffee for a full year may seem daunting, you really just need enough discipline to make your own coffee until it becomes a habit. Once it's a habit, it no longer requires discipline (like brushing your teeth).
From here, you can begin to develop more actions that support the larger goal of your big trip to see Middle-Earth for yourself! For instance, here are a few other small, daily actions that may support your goal:
Cook 2 meals at home per week (I actually had a client implement this with great success!)
Limit yourself to 1 bottle of wine per week
Turn off the TV and read 2 nights per week (not only does this save on electricity, but you may find you need fewer streaming subscriptions)
Cook 2 meals at home per week (I actually had a client implement this with great success!)
Limit yourself to 1 bottle of wine per week
Turn off the TV and read 2 nights per week (not only does this save on electricity, but you may find you need fewer streaming subscriptions)
The daily actions you need to implement will depend on your unique goals.
So ask yourself these few questions to get started:
What is my end goal (e.g. road trip, home down-payment, new car, etc.)?
What skill do I need to develop to reach that goal (i.e. mindful spending)?
What habit will help me develop that skill (e.g. limit restaurant spending)?
What actions can I take to build that habit (e.g. cook 2 meals at home per week)?
What is my end goal (e.g. road trip, home down-payment, new car, etc.)?
What skill do I need to develop to reach that goal (i.e. mindful spending)?
What habit will help me develop that skill (e.g. limit restaurant spending)?
What actions can I take to build that habit (e.g. cook 2 meals at home per week)?