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Are poor budgeting habits making you miserable?

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Personal finance and managing money are more about psychology than it is about technical knowledge. I’ve known many people much smarter than I am who don’t know the first thing about how to manage their money.

You don’t need to be a genius to manage your money. You simply need to develop good habits and break your bad ones. If you want to be happier with your money, you need to align your finances with your priorities in life.

3 Reasons Your Money Management Is Making You Unhappy

You don’t track your expenses

Tracking your expenses and knowing where your money is going is the first thing you need to do if you want to improve your financial health. If you want to pay down debt or invest to build your wealth, you need free cash at the end of every month. How do you get free cash at the end of every month? It’s a simple three-step process.

  1. You need to know where your money is going each month.
  2. You need to know what you value and what you don’t.
  3. You need to stop spending on what you don’t value and redirect that money to what you do value.

If you are spending $600 per month on a car payment for a brand-new car, ask yourself how much value that car is bringing to your life. Would you be noticeably less happy with a used car and a $300 car payment? Would you be better off if you redirected that $300 towards paying off debt or putting a down payment down on a house?

Start going through your credit card and bank statements, hold onto every receipt and start tracking where your money is going. Make a list of all your monthly expenses and next to each expense write a checkmark next to the expenses that are absolutely necessary or that bring real value & happiness to your life. Put an “X” next to all of the expenses that don’t provide value.

For a detailed step by step walkthrough on determining what purchases bring value to your life read this story.

You have no financial gameplan

Now that you’ve analyzed your expenses and began cutting expenses that don’t bring you value, it’s time to start allocating money towards the things in life that do bring you value.

People often tell me that they wish they could travel more often because it makes them happy and provides value to their life. I always ask the same question “how much are you budgeting for travel expenses every month?” The reply is usually some variation of “I don’t have enough money to save for travel.”

I call Bullshit on that!

Don’t tell me that travel is one of your top priorities if you don’t have a line item for travel in your budget. A budget is simply a list of our financial priorities and if travel isn’t included in your budget, you haven’t made it a financial priority.

  • If you’ve budgeted $600 for a new car payment and $0 for travel, you’ve prioritized a new car over travel.
  • If you’ve budgeted $120 for a cell phone and $0 for travel, you’ve prioritized your smartphone over travel.
  • If you’ve budgeted $50 for a gym membership and $0 for travel, you’ve prioritized going to the gym over travel.

If travel isn’t included in your budget it’s because you have not made it a priority. If you don’t prioritize the things that make you happy, you are doomed to live a life of frustration and regret.

You haven’t automated the process

Once you’ve analyzed your expenses and reallocated money from things that provide no value to things that do there is only one thing standing in the way between you and financial happiness; you.

Managing money is a lot like eating healthy, everyone has great intentions and motivation to make changes on January 1st but by February 1st most people have lost that motivation and reverted to our old habits.

Once you’ve made a budget that is truly representative of your financial priorities, ensure you follow through by automating all of your payments and savings goals.

Sticking with travel, here is how to ensure you have enough money to travel in 4 steps.

  1. You’ve tracked and analyzed your expenses and realized that spending $600 for a new car payment does not provide you any more value than spending $300 for a used car payment.
  2. You’ve created a new budget that allocates $300 towards a car payment and $300 towards travel.
  3. You decide to create a savings account labeled “travel fund” which has the sole purpose of saving for your next vacation.
  4. Finally, you call your bank and set up an automatic transfer of $300 from your checking account to your “travel fund” on the same day each month.

With one simple change, you’ve started to align your finances more closely with your priorities in life.

While travel is the example I use here, this formula can be applied to any financial priority such as saving for retirement, paying off debt or saving for a child’s education.

The more we align our finances with the things we truly value the happier we will be. Money can’t buy happiness but managing it properly can.

Is there something you really want to do but haven’t been able to find the money for? Let me know in the comments below and let’s see if there’s a way you can start moving towards that goal.

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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