Mindful Money Habit #5: Create a Spending Plan (Not a Budget)

Trailhead Planners LLC |

As we tumble into another year, we must gird ourselves for the inevitable: we are to be bombarded with blog posts, step-by-step plans, and advertisements imploring us to 'get in shape'. It gets worse, as the metaphor isn't relegated only to the fitness industry. There is simply no end to what we can apply this metaphor to! We can, of course, start with our bodies:

Your 12 Step Plan for Seeing your Abs in 2018.

Or, our partnerships:

How to have a fit marriage in 2018.

And, Lord protect me, there are the budgets:

Workout your budget in the New Year! 5 Steps for budgetary fitness in 2018! Tighten up your budget with a new fiscal fitness Plan!

More, as if the psychological harm of a tired metaphor wasn't enough, we get confronted with the reality. Like New Year's gym-goers, who fizzle out from their new year's resolutions by March, our ambitious and well-meaning budgeters will also likely fail.

For example, according to a Coinstar survey, 65% of surveyed individuals have a budget in place of the holiday season. Unfortunately, 77% expect to exceed said budget.

How's that for budgetary confidence?

The Good News about Budgets

Here's the good news on budgets: It's not your fault (and yes, that is the only good news).

More than anything, it's a framing issue. You see, budgeting suffers from focusing on the negative. You go through your expenses and you berate yourself for overspending, as you obsess over what needs to be cut out. You feel terrible. Guilty even.

Holy smokes! I spent how much on Amazon orders last month!


I wish I could get up earlier to pack my own lunch! My weekday lunch habit is out of control!

Unfortunately, focusing on the negative is the wrong way to go about things as it only seems to perpetuate more of the same. If you feel like crap because you consistently overspend, that same mental state can deplete your willpower. Then, when confronted with another opportunity to spend, you are unable to resist.

In other words, the issue with budgets is a problem of focus. It forces you to think about what you should not be doing, but does not offer any thoughts on what you should be doing. As a result, your habits do not change because you don't have a positive vision of what you are trying to achieve and the activities that will help you get there.

The simplistic fitness metaphors noted above as well as countless other approaches to personal finance attempt to suck us into the cultural idea that successful personal finance is about self-control and willpower.

To be clear, budgets are about self-control and willpower, and that is precisely why they don't work. Because when you're stressed, or tired, or hungry, or anxious, your willpower suffers. And in these states, consumption brain can take over our senses until we've drowned our worries in a dozen donuts or a massive online order.

Ultimately, instead of focusing on everything we would like to change, we should instead be focusing on a positive vision of what we desire or aspire to.

How to Create a Spending Plan

First, discard the word 'budget'. Just toss it aside. You don't need it. Instead, find something else that suits you. Generally, I prefer the phrase ’sustainable spending plan'. But feel free to get more specific. You might like, "Jenny's Plan for Dominating Her Financial Goals" or "Jack's Early Retirement Plan." It's all good and it all works.

In contrast to a budget, the goal of a spending plan isn't to cut out items, like a financial diet. Rather, it is about ensuring you prioritize and fund whatever is most important to you. Yes, this includes all the basics like housing and insurance, but it also covers long-term goals, like funding a graduate degree, buying a home (or vacation home), a sabbatical, or your eventual retirement.

Second, a sustainable spending plan speaks to what you value in your dat-to-day life.  For example, you might value being debt free so you decide to plow money into your school loans. Or, if you value buying local, organic produce over simply buying whatever is cheapest, you might, say, add $50-100 to your grocery allocation. Or, if you absolutely love going to a yoga studio that costs $70 more per month than going to the gym, make sure you allocate cash there first. All to say, you aren't just saying 'no' to personal excesses, you are declaring a loud 'Yes!' to your personal values and aspirations.

After creating a list of goals and items to fund first, you can then look at whatever money is left, if any, and decide what to do with it. For example, if after dishing out for the expensive yoga membership, you find you are $100 in the hole, you might decide to stop going out for dinner or brunch once a week. Conversely, if you still have $200 left over after everything else is funded (rainy day fund, retirement plan, vacation fund, goals, etc.) use this as a personal slush fund and consider it money you can be spontaneous with.

In effect, by focusing on spending, not expenses, we keep our agency intact. For every outflow of money, you have a choice. Your mortgage isn’t an expense, it’s an amount your willingly spend to live in the home and neighborhood of your choosing.  Insurance premiums are not expenses, they are an amount you spend because you value your family’s financial well-being and want to protect against a risk.  Even taxes are the price you pay for choosing to live in this country, or a particular city or state. Thinking in this manner, instead of a passive ‘expense-focused’ manner, helps you let go of the things you do not value and, thus, do not need to spend money on, while making active choices to spend on whatever is most important to you.      

Ultimately, you are attempting to create a spending plan that will honor both your present joys and financial realities as well as the needs and aspirations of your future self. This is the balance, because successful personal finance, to an extend, is about delayed gratification. But to succeed at delayed gratification, it shouldn't feel like you are suffering in the present. Rather, you should feel, well, positive.

To create a sustainable spending plan, and fully kick budgets to the curb, we must connect it to purpose, and create healthy habits that support that purpose.

Here's five tips to help you do just that:

5 Tips for Creating a Sustainable Spending Plan

  1. Start with a Positive Vision of your future goals and aspirations, and work backwards. How will you fund these goals? What will help you achieve them?
  2.  Connect your spending with your values.  For every cent that you spend, think to yourself, does this add value to my life?  Does it connect to my values and long-term goals?  If not, nix it. 
  3. Prioritize money basics (insurance, rent/mortgage, emergency fund, etc.) but know that you can often change these fixed prices.  For example, if your car payment and insurance are eating up your budget, shop your policy around, trade your car in for a cheaper car or, if you’re feeling energetic, sell your car and ride your bike, use a car share service, or take the bus everywhere.  Reallocate the savings toward something more meaningful to you.
  4. Discretionary spending comes last. Often, we start with discretionary spending, then panic-pay our bills, and have nothing left for our goals.  A sustainable spending plan flips the bill.  Once your goals have been funded and your bills paid, what’s left is discretionary spending.  This is your ‘fun money’ that can be allocated as you choose. Notice that it is constrained by your goals. That’s be design as they come first.  
  5. Create separate accounts or silos for your goals that demand saving.  This will keep you from spending money that was already allocated elsewhere.

Remember, you don’t live to make a living; you make a living to support a vibrant and soulful life.  Your spending should support and value your idea of personal fulfillment.