Creating a Budget in 2020: Not Having a Budget Could Be Best
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Who doesn't want to be smarter about money in the new year? Making a budget can be a good way to set financial goals. But how you manage your money doesn't necessarily start in your wallet. Some financial experts say it starts in your head.
It all comes down to what motivates you.
What psychological role does motivation play in successful budgeting?
If you are motivated by watching where every single dollar goes and knowing how each paycheck is earmarked, then that'll work for you. If that's really intimidating to you or stresses you out or makes you feel stifled, then you're going to just recoil.
That's personal finance reporter Julia Carpenter. She'll explain the psychological side of budgeting, also what a reverse budget is, and why some people are better off not making a budget at all. That's coming up.
Whether you're making New Year's resolutions or not, being wiser with money is a priority for everyone. And making a budget is a good place to start. Or is it?
How do different personalities determine which budgeting style will work?
There's more debate than you'd think about how to draw up a budget or whether to have a budget at all. And Wall Street Journal personal finance reporter Julia Carpenter is here to discuss. So, Julia, a lot of people whose job it is to analyze the budget-making process, they say that managing your money has more to do with your mind than your wallet.
There's not a one size fits all budget. And I think that can be hard for some people to hear because they want to hear there's some sort of magic formula that they can plug their money into or some spreadsheet that can unlock all of these secrets. But so many different kinds of budgets work for you based on your habits, your goals and your personality.
So you need to know your own life story, your own sense of self-instilled discipline before you can put all these numbers down on paper.
And what motivates you? I think again and again, when I was talking with experts for this story, they said it all comes down to what motivates you. If you are motivated by watching where every single dollar goes and knowing how each paycheck is earmarked, then that'll work for you. If that's really intimidating to you or stresses you out or makes you feel stifled, then you're going to just recoil.
And in that case, maybe having no budget is the right way to go, but just don't go into that store and buy the $5 coffee when you could buy a $2 coffee, you know, 20 steps away.
Why might ‘not having a budget’ actually be an effective strategy?
An expert I talked to made this point, too. When you say, I don't have a budget, a lot of people, that is a budget. A budget is just a spending plan. It's just a savings plan. So a lot of no-budget advocates say, you know, move your money to savings right away, and then the rest of the money that you have in your paycheck, the rest of the money you have in your debit card, use that at will. And that's still a budget. You're still contributing to savings. You're still not overspending.
What does a reverse budget mean and how does it work?
You're still not going into debt. You're just approaching it in a different way than somebody who maybe earmarks or buckets their money.
And people in the world of financial psychology say there are actually four typical methods for creating budgets.
Right. You can either be somebody who associates money with status, or you can be somebody who associates money with something to avoid, something to kind of be scared of. Somebody who is super disciplined, somebody who's super vigilant about their money, or somebody who sees money as kind of the goal in the whole process, get more money, put more money.
And then some financial advisors recommend a reverse budget. What is that?
Which four behavioral money types do financial psychologists identify?
So when you're thinking about a budget the way we have traditionally thought about it, you put money toward bills, put money toward rent, put money toward this, put money toward that, and then whatever is left over, that's what goes into savings. But a reverse budget puts the money in savings right away and you don't even look at it. And then the rest of the money that's in your account, that's money that you can spend however you see fit.
All right.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:24
2
What psychological role does motivation play in successful budgeting?
0:24–1:05
3
How do different personalities determine which budgeting style will work?
1:05–2:19
4
Why might ‘not having a budget’ actually be an effective strategy?
2:19–2:41
5
What does a reverse budget mean and how does it work?
2:41–3:18
6
Which four behavioral money types do financial psychologists identify?
3:18–3:44
7
How can you choose between earmarking money and a pay-yourself-first approach?
3:44–3:49
Speakers
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