Why Budgets Don’t Work for Most People
Have you ever tried over and over to make a budget for yourself, but constantly find yourself blowing it? I do this all the time. I create some sort of budget and start strong avoiding purchases of things I do not need, but slowly I start to drift back into spending again. It has taken a while, but I have found some ways to help myself minimize unnecessary spending while increasing savings AND still spending some money on the things I want.
People are really good at justifying the things they want. I am 100% guilty of this myself. I often make purchases for things I do not need and often end up reselling at an even lower price. Or sometimes I even purchase something disposable that I don’t use, or does not actually bring me satisfaction.
Some examples of purchases I justify might be a new bass guitar. I purchased a new bass guitar thinking that it would somehow it would help renew a passion for music. It turns out that a $600 purchase will not actually do that for you… surprise.
Examples of disposable or one time use purchase I make might be a coffee at Starbucks or a sandwich at Firehouse subs. These purchases are fairly expensive for what they are with a coffee potentially costing $5 and a sandwich $11, but I still end up buying these things on a semi regular basis.
I know I am not alone in these spending habits because I watch other people spend money on these types of things all the time. However, I do have a couple of strategies that I have started using in order to avoid unnecessary purchase and help myself to save money even if I make them.
If a large purchase (over $100) is not justified by an immediate need, I wait. An immediate need might be tires for a car or a push mower so that I can mow my grass. This is particularly important to do for things that I really want or that I am excited for.
When I decide to spend $600 on a bass guitar when I already have a bass guitar that I never play is usually a bad decision. Even though it might be a bad decision, it is easy to overshadow that with excitement. If I had it to do over again I would go back and wait at least 7 days after I decided to buy the bass before I made the purchase. I don’t mean 7 days after I decided it might be a good idea to buy one, I mean 7 days after I find “the one” and feel the excitement. Waiting 7 days probably would have allowed me the time for the excitement to dwindle and allow me to make a logic based decision, not an emotional one.
So my guideline after this purchase is to wait 7 days after I decide on the specific purchase I want to make before making the purchase. Only excluding immediate needs from this rule.
The small purchases I am talking about are things that are wants and not needs. Overpriced coffee, sandwiches, knick knacks, jewelry, clothing, etc.
Most of these small purchases are going to be difficult for people to avoid. Honestly, most people do not have the discipline to avoid them and really don’t want to. However, something that I think hits home for most people is their bank account balance. Often when I am thinking about making a small purchase for something I do not need, I check my bank account to justify the purchase I am about to make.
Knowing that I often look at my checking account before I make these purchases, it occurred to me that if the balance was too low to justify the purchase before I get paid, I won’t make the purchase. So I decide to do a few things:
- I start direct depositing money into my savings account (about 10% of my pay)
- I downloaded 2 apps: Digit and Acorns.
Digit and Acorns
Digit is an app that will analyze your spending habits and deduct a dollar amount each week based on your spending and account balance. It then holds on to the money until you decide to withdraw it. Withdraws take about 3 days. If you are interested in the app you can find it here.
Acorns is an app that analyzes spending on your bank account and rounds up dollar amounts. Then once the “round ups” reach $5 it deducts that amount from your bank account and invests it for you. An example of how this works would be:
- You make 6 purchases – $5.50, $4.10, $3.30, $6.01, and $.99
- These purchases are rounded up to the nearest dollar and the difference goes toward the round-ups. So $5.50 is rounded to $6 and 50 cents goes toward the round-up amount.
- Then once the round up amount is $5 or greater, a deposit is made into your acorns account. In our example the round ups only get to $3.10 so we still have $1.90 in round ups before a deposit is made.
Acorns then invests the money in various groups of stocks that you specify until you withdraw the money. Withdraws take about 5-7 days because the sale of stocks before your money is returned. If you are interested you can find the app here.
In the past year I have saved over $1000 from the two apps along with 10% of each paycheck. The great part is I managed to save that additional money without really feeling like I was giving anything up. It disappears incrementally and I just make fewer unnecessary purchases per month.
It might seem insignificant, but in 5 years that amount of money saved from the two apps can easily be:
- A down payment on a house with an FHA loan.
- Most of the cost of a used car.
- New flooring for a house.
- That vacation to Europe you always wanted for yourself.
For the most part, waiting on the big purchases does not add a ton to my savings, but it keeps me from dipping into it due to over spending.
This is not a sponsored post, I use both of these apps and just wanted to share my experience. Hope you enjoyed!