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“Budgeting” is one of those words that strikes fear into the hearts of many. Chances are you, like most other people, have at some point in your life made a budget and most likely, instantly failed to keep it up — leaving you feeling like you have failed and the status of your financial health a question mark.
A recent Pew survey found that more than half of Americans reported they were just breaking even or spending more than they earn each month, with one-third reporting their household had no savings. If this is the case for you, it’s no surprise your budget just isn’t cutting it.
The truth is, keeping a budget is hard and often overwhelming because it’s an outdated method of managing your money. Instead of agonizing over a budget or promising yourself next month will be the month you start one, consider the following mistakes most people make in their quest for financial fitness and why the real solution is in building better money habits over building a better budget.
1. Accept your budget will not solve your financial problems
Many people make the mistake of thinking a budget will solve their financial woes when in reality it simply acts as a record of all the times you overspent each month. Budgets don’t get to the root of whatever behavior is actually causing stress on your finances. Instead of helping you figure out where your spending pain points are – did you spend too much on cabs the past few months or have you been overdoing it on Friday nights out – most budgeting tools or spreadsheets just scold you at the end of the month for going over budget. They don’t actually help you fix anything.
Instead, you should look toward the tools out there that can provide real-time analysis and context to your spending so you can learn about these pain points the moment you start overspending and adjust your behavior immediately. This context truly helps put the control over your finances back in your hands, and teaches you to become more mindful of what is worth spending money on and what you can live without for the sake of a happier bank account. Over time, this context and control leads to improved spending behavior and more money in the bank.
2. Stop thinking about your spending and savings accounts as separate entities
Financial wellness is all about understanding where your money is coming from and where it’s going. To improve your financial wellness is to accept that how you spend is inextricably tied to how you save. Most people set their savings goals and stash away a predetermined dollar amount each month. This might seem like positive behavior, but if your spending activity doesn’t support that dollar amount, you aren’t really making strides toward any type of financial wellness.
As any budget will show you, no one actually spends and saves the exact same amount every month. Trying to boil down your finances to a few standard buckets each month is an exercise in futility. Saving shouldn’t be equally as stressful. In order to improve your financial wellness, your savings behavior should reflect your spending behavior. If you are doing well with your spending this month, now is the time to save since your bank account should be looking a bit larger than normal and stashing away a few dollars won’t hurt as much. If there was an unexpected expense this month or you are struggling to maintain healthy spending habits, then it simply doesn’t make sense to add to that stress and put money away into your savings. What people should also do is monitor how much you are able to save each month (or how much you aren’t able to) and reassess any pain points in real time.
3. Don’t sweat the talk about financial milestones
It’s called personal finance because it’s exactly that, personal. The pressure to reach a certain personal finance milestone because it’s the New Year or you’re turning 30 is not a necessary healthy financial behavior. As you know, no one saves or spends the same each month, so it’s unlikely your financial situation is also the same as someone else’s because of an arbitrary connection like age, city, or career.
It’s not that the advice usually tied to these milestones is not sound; it’s just that this one-size-fits-all mindset is outdated. If your financial situation doesn’t allow you to put an entire paycheck into your retirement fund every month starting the day you turn 30, then you definitely should not feel the pressure to do so. Some people just need to cut down on their morning lattes to jumpstart that 401(k). For others, it’s a much more complex equation than that. By letting go of these predetermined notions of the perfect budget or financial milestones, people can finally feel empowered to seek out the right tools and the right advice on their finances to start improving their financial health no matter what the scenario. Don’t hold yourself to other people’s standards. You have to make financial decisions that are right for you, not what a magazine or society say are “the five financial things you should have accomplished by the time you are 30.”
We’re entering an era where the traditional banking experience just doesn’t fit the customer’s needs anymore. In a mobile-first world, budgets and a one-size-fits all approach to financial health is never going to cut it. You need to take the time to understand your spending and savings behavior and use that context to gain control over your finances without the stress of fitting into the perfect budget every month. The tools are out there, you just have to take that first step in accepting that budgets don’t automatically lead to financial happiness.
Alex Sion is President and C0-Founder of Moven. Follow him on Twitter.