Almost every client I’ve had spends more on their lifestyle than they wanted to or that they intended to. For those that have a goal such as retiring before the age of 65 or paying off a home, this can result in a pronounced setback.
Most people find ‘sticking to a budget’ to be incredibly uninspiring, not unlike eating steamed vegetables nightly for dinner.
What are you supposed to do when you have spent your ‘eating out’ budget by the 3rd week into your month? Just stop eating out until the following month?
Or what about entertainment, such as concerts or movies? Just stay at home all weekend, watch TV, play board games?
While these are just 2 examples, and while many people may find these ‘spending corrections’ manageable, others see them primarily as cutting out activities that help them enjoy life.
So, how do you turn this around? How do you find a way to ‘see’ the tradeoff in a more concrete way than just ‘ I stayed within my budget this month by doing nothing enjoyable the 4th week in’?
By ‘anchoring’ your thinking around growing your Balance Sheet vs. ‘sticking to your budget’.
What does that mean?
It means focusing first on your Balance Sheet before focusing on your Budget.
This doesn’t mean they are exclusive of each other; quite the opposite: you can’t have a savings goal without a spending goal that’s led by meeting that savings goal.
The order in which you focus on these 2 can make the difference between being inspired or discouraged to stick to your budget .
Your Balance Sheet includes retirement accounts and non retirement accounts.
While keeping track of your spending requires weekly monitoring, it’s pretty easy to keep track of the account types on your Balance Sheet.
When you see your Balance Sheet accounts growing, you visualize the next ‘goal’ per category and are motivated to meet it.
For example, you may have $200,000 in your retirement accounts.
While it may be hard to visualize this number as anything but theoretical, you can set a goal of seeing it accomplish the next ‘milestone’, or increment, such as $210,000. The same can be applied to a savings account. Let’s say you have $50,000 in savings. Your next ‘milestone’ could be to $55,000.
The more you visualize meeting the next ‘milestone’ per account type on your Balance Sheet, the more you’ll be inspired to meet the numbers on your budget.
By doing this you turn a budget on it’s head: You are encouraged and excited when you see the next incremental milestone met on your Balance Sheet.
Because you start anchoring around those Balance Sheet increments, you are more willing to cut back on your spending, because you more emotionally (motivated vs. discouraged) feel the connection between the 2.
This is a cornerstone moment; you then are able to make those immediate tradeoffs without feeling so much like you are denying yourself but instead feeling like you are working towards the next increments on your Balance Sheet.
What does this lead to? Sure, it means meeting your financial goals on time, likely even earlier.
But perhaps more importantly, it means you are living your lifestyle with intention and finding more meaning in the things you do spend money on.