Creating a Budget in 2021? Think Small.
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What is the main topic discussed in this episode?
Here's your money briefing for Tuesday, December 29th. I'm J.R. Whalen for The Wall Street Journal. 2020 has been rough on people in most areas of their lives, not the least of which is their personal finances.
Why are experts recommending micro-budgets for 2021 instead of annual budgets?
But if you're thinking of setting up a personal or household budget for all of 2021, instead, try thinking smaller. Many experts suggest setting up a series of micro-budgets.
I think this year especially has really emphasized to people that you have to be flexible and that plans change. But even beyond the 2020-ness of it all, setting a really big, huge goal can feel unachievable. And if you're unable to kind of carve out a path for that goal, you're just going to throw your hands up if you're not making any progress and say, okay, let's just chuck it out altogether.
Our personal finance reporter, Julia Carpenter, has been checking in with financial planning experts about the value of taking small steps toward budgeting your way to a successful 2021.
How did 2020's uncertainty change people's ability to stick to big financial goals?
And she'll be here to talk about it after the break.
New Year's resolutions often get tossed aside as life's ups and downs get in the way. But people setting personal finance goals are more likely to find success if they think month to month or even day to day, rather than looking at the entire year. Our personal finance reporter, Julia Carpenter, has been talking to money experts about this, and she's with us to discuss. Julia, thanks for being with us.
Thank you so much for having me.
So a lot of people started 2020 with some pretty lofty personal finance goals. And I bet by now their finances look nothing like what they envisioned.
2020 definitely taught us to expect the unexpected and to be able to pivot those goals or maybe refashion them altogether.
Okay, so let's talk about what's wrong with making goals for the new year. Why do experts think that steers people in the wrong direction?
I think this year especially has really emphasized to people that you have to be flexible and that plans change.
What psychological benefits come from celebrating tiny wins in micro-budgets?
But even beyond the 2020-ness of it all, setting a really big, huge goal can feel unachievable. And if you're unable to kind of carve out a path for that goal, You're just going to throw your hands up if you're not making any progress and say, okay, let's just chuck it out altogether. And that way, the goal that you've set that maybe could have been three smaller goals or some more bite-sized goals just gets forgotten altogether.
How much does psychology play a role here in achieving success?
One of the professionals I talked to said that celebrating the tiny wins is a really key thing in this smaller scale budgeting. And so if you see, hey, I didn't spend that $10 today that I maybe would have, that feels more momentous on this smaller scale than if you look at it in the course of a month and say $10, whatever. Celebrating those tiny wins and feeling the actual impact of them does a lot to keep us motivated.
All right, so let's talk about the smaller bite-sized goals or micro-budgets. If you're not budgeting for the year, what kinds of timeframes should you be budgeting for?
choosing a smaller timeframe and making tiny changes to your budget can be hugely beneficial. So thinking about a timeframe that's maybe a pay period, a month, a week, instead of a whole year or a whole season allows you to examine everything that you're doing with a keener eye, but it also gives you room to be flexible and to make changes in real time as opposed to at the end of a year or after mistakes have already been made.
But a lot of people already live paycheck to paycheck. How can you budget within that timeframe?
Which timeframes (day, week, pay period, month) work best for creating bite-sized budgets?
I think being aware of the constraints and being aware of how you work is even more helpful. So knowing that I have to have this next paycheck, I'm not going to have money after this week, my hours could be cut, I'm going to have to adjust. Looking at that smaller scale gives you a little bit more control and power over what you're doing. If you feel like you're looking at a whole year and everything is so uncertain, that's going to lead to that kind of throw your hands up in the air, forget it all effect that we talked about earlier.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:16
2
Why are experts recommending micro-budgets for 2021 instead of annual budgets?
0:16–1:00
3
How did 2020's uncertainty change people's ability to stick to big financial goals?
1:00–2:03
4
What psychological benefits come from celebrating tiny wins in micro-budgets?
2:03–3:35
5
Which timeframes (day, week, pay period, month) work best for creating bite-sized budgets?
3:35–4:58
6
How can people budgeting paycheck-to-paycheck plan for variable income with micro-budgets?
4:58–5:39
7
What pitfalls should you avoid when focusing on short-term budgets and how do you prepare for taxes and emergencies?
5:39–6:24
Speakers
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