When it comes to finances, many people struggle with expenses, debt, income, and savings. It is hard to plan your finances when you don’t really know where to begin, and this is where most people go the traditional budget route and start writing all their expenses and income down on paper. However, it has been shown that budgeting is not the whole answer.
The trick to being financially free and increasing your net worth is more about changing your behavior. According to the famous book “7 Habits of Highly Effective People“, anyone can change their future and take hold of their lives, by following a few simple habit transforming rules. Budgeting alone cannot help you change your financial fate – you have to get to the source of the problem first. Let’s take a more detailed look.
Being Positive and Proactive
Lots of people live paycheck to paycheck, and always shift the blame to other people or things in their lives that have contributed to their poor financial state. Being proactive is the first step towards getting you on the right path. This basically means taking responsibility for your actions and not complaining about bad things happening to you (which is called being reactive). For those who habitually blame others for how their lives turn out are missing the big picture.
Think about those people who were born into poverty, who struggle growing up in bad neighborhoods, with no parents, or who even experience abuse. People like this often find a way out. They manage to take control, go to college, get a good job, and plan their finances correctly. They haven’t used their poor upbringing as an excuse for not making money or getting into debt. Why should you?
How Do You Start Being Proactive?
Well, this is the hard part. For those who have subconsciously started taking on a reactive behavior instead of being proactive, it is usually a process that has evolved over time, and due to many outside influences. But here is the good news! You are in charge of these influences. You can say no! You have a say in everything that happens in your life. So, here is what you can do if you are struggling to keep your head above water before you even start budgeting:
• Say no to peer pressure – If you are being pressurized to visit with friends, go out to eat, attend concerts and socialize when it is outside of your means, then you need to step up and tell people. Yes, it might be hard for you to admit that you are having money problems, but all you need to say is that you are living a more frugal lifestyle and wish to cut back on your spending for a while. Ask your friends to think of other, cheap, or free ways to have fun together, like hanging out at someone’s house instead of going out to a restaurant every week.
• Be realistic about your spending habits – The well known financial expert, Suze Orman advises that you ask yourself 3 questions before you buy anything. 1) Do I need it? 2) Is it kind to yourself? And 3) Is it true for yourself? If the answer to any of these is no, then put the item back and walk away. If it helps, resist the temptation by avoiding shopping malls, and convenience stores as much as possible. Don’t even browse through home décor and fashion magazines.
• Start taking responsibility for being positive – The first thing you need to do to change your behavior is to start thinking positively. Say affirmations to yourself like “I will stop spending unnecessarily” or ” I can start saving x amount each month”. Taking responsibility and not ignoring the problem is the ultimate first step.
6 Effective Steps
The other steps that you can implement that will help you change your behavior towards money and spending that will help you actually draw up a realistic budget and stick to it include:
• Have an end goal in mind. Focus on what you want to achieve and use this vision to keep you on the right track.
• Get your priorities in the right order. Think about what you know is right for you, and not about what would be nice or what other people want.
• Think Win-Win. You need to get out of the habit of comparing yourself to other people and thinking that because your friends might have money that you can’t for some people. There is plenty of everything to make everyone financially stable. Similarly, don’t compare possessions. Net worth is all about assets, not about what material objects you have.
• Communication is key. Work together with your spouse or partner to create a positive, encouraging environment for frugality.
• Find new ways of doing things. Don’t just follow the crowd, but find ways that work for you that help you keep your spending in check such as taking a packed lunch to work instead of buying out every day.
• Be organized. This is perhaps the most common reason for wasting money. You have to pay a parking ticket because you lost track of time, or you can’t find something so you have to go out and buy another one. This also means planning your day so that you take extra water and snacks for the kids when you go out etc.
As you can see, changing your behavior first is the ultimate goal that you should be looking at when you want to take control of your finances before you even look at budgeting.
My name is Kevin Watts and I am the creator of Graduating from Debt. I was like millions of recent college graduates in heavy debt with very little hope. With the right attitude and discipline I took control of my financial picture and now I can say proudly that I am debt free.
Photo by: Flickr
KC @ genxfinance says
Because there is nothing that money can do, all of your budgeting is useless if you don’t have the right attitude to deal with it. These steps are quite effective in taking control of your expenses.
What is the outcome? What is the budgeting supposed to do? Just tracking numbers is never enough to get you to your goal. A good approach to your spending will do more for you than budgeting.
Kevin Watts says
You are right. It’s all about having the right attitude. I think it’s important to set goals if you do a budget so you can hold yourself accountable.
Money Beagle says
Having an attitude and behaviors that will lead to effective budgeting are key. It’s the same as building a good foundation for a house. You can build the greatest house in the world, but if it’s not sitting on a solid foundation, it’s going to end up falling apart. Your house is your budget, but your attitude and behaviors are the foundation.
I agree! There is so much more than just budgeting for a good financial life. It is taking control of your spending and making better decisions.
Kevin Watts says
That’s a great analogy. Having the right attitude and the correct mental framework allows to have a great foundation to build your wealth on.
I like the reasoning. It is like saying a diet will keep you from being fat, when really you need to eat healthy for the rest of your life, not diet and yo-yo back and forth when you switch back to junk food. It is a long term mindset.
A diet may be similar to a budget. It can be an artificial solution to a bigger problem. You need to take control of your spending and make better decsions.
Kevin Watts says
That’s another great analogy. Eating healthy foods is very similar having the right mindset
Mary at Speak Of Money says
So agree. Traditional advice of what you should do is constantly in conflict with the reality of what we do or why we don’t do it. I suggest to my clients they schedule time — get it on the calendar — to start their financial workout and build momentum. The 6 effective tips you give are perfect for creating actions in your financial workout sessions. As someone once told me, if you don’t schedule it, it’s not real. So don’t just think and talk about it — schedule it and honor your commitment like you would any other appointment.
Spending some time whether on budgeting or analyzing your expenses is worthwhile, but it is changing attitudes and how you do things that help you reach success.
Kevin Watts says
Thanks. I agree if you don’t schedule or write it down it has a lot less meaning for you.
Having an end goal is mind is a key for me in managing finances. If I clearly know what I want to focus on, it helps me to curb impulsive and unfocused purchases.
I concentrate on what ever outcome or goal I want to achieve in everything I do! Sometimes, I have to remind myself of what I am trying to achieve, but it works.
Kevin Watts says
Thank you Terry. I think having a goal is one of the most important ways in holding yourself accountable. I have had several goals that I have accomplished this year thanks to having the right attitude.
I love my budget just because I think it’s fun to put it all on paper and get a visual for what’s really going on with our finances. However, I totally agree that it’s kind’ve pointless unless you change your behavior. If you’re still overspending then a budget probably won’t help.
I view budgets as a structure to help you achieve your financial goals. You still need to be financially responsible.
Kevin Watts says
With online tools like mint.com this visualization of your spending habits becomes easier to look at.
Simon @ModestMoney says
Organization! Can’t be stressed enough…it has saved me many a headache and to an extension money. For example, remembering to make credit card payments on time. Perhaps the best way I can summarize this post is with a paraphrased qoute from Warren Buffet, “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble while budgeting!”
I think you can find a lot of habits or skills that will help you succeed. Organization, determination, discipline, goal oriented, and many more.
Kevin Watts says
Great quote. That’s often the hardest thing is to control your spending urges. I think having an end goal in mind makes it a lot easier.
Pension Retirement says
I’m also very outcome focused. If I’m budgeting, or dieting, or whatever, I have an end goal in mind. I’m not budgeting to budget, I budget so that my future dreams and desires are taken care of. I don’t diet because I like depriving myself of tasty things, I’m looking to get healthier. Budgeting and dieting are steps in a larger journey.
A budget is supposed to help you reach your financial goals. It is still up to the individual to make it happen. The beauty of starting with the outcome is you can go backwards and create milestones for you to achieve on the way to your goal.
Definitely agree. Budgets and other limits that help us are only effective if we develop habits to stick by them.
Most people prepare budgets based on past expenses. If you only do the arithmetic, you failed. It takes changing your spending habits and much more!
Kevin Watts says
It’s all about habits and what we accomplish with our financial goals are built on these successful habits.
Andy Hough says
This makes sense. I just wrote a post about setting goals that change your behavior. Otherwise once you reach your goal and go back to your old behavior the goal will be lost.
I agree! It would be to only work on your debt and never change your spending habits. As soon as you pay down your debt, you will be back again.
KK @ Student Debt Survivor says
Not being organized with my dinner menus definitely costs me money. I get halfway through a recipe and then notice I need something I don’t have. So I have to run out to buy it when it’s not on sale. I’m trying to be better about this because those little trips to the market add up quickly.
My wife and I are organized, but it requires a little planning. For example, every time one of us uses up something or it is low, we put it on a list. Sometimes the list may hang around for a couple of weeks, but it helps keep us organized. I hate shopping, so I have to be very organized to make sure I put it on the list for my wife.
David @ PBC says
The budget is essential but adopting the correct attitude regarding finances is certainly more important. You are right in saying that we all have to manage our expenses, income and savings rationally. These are vital in achieving financial stability.
I have often said just putting numbers in a budget is not budgeting! You have to approach budgeting like a detective. The numbers are clues to solve a problem. If you analyze your expenses, you will develop a better approach to reach your financial goal.
Kevin Watts says
What is a budget if you don’t stick to it? It’s a piece of paper. If you develop the right attitude and adopt the correct habits following a budget and sticking to it becomes something attainable.
Suzanne @ Financial Advisor Coach says
Good topic. The reason I like behavioral finance is because it calls attention to the stupid things we do with our money. I grew up with a dad who lived the fanciest lifestyle but didn’t have much in the savings account. I learned from that. My behaviors are based on what I want for my life.
Thanks, our financial habits and behaviors are key to success or failure. Unless you think about your habits and behaviors you will keep making bad choices.
Kevin Watts says
I also learned from my mother on what not to do lol
Thaddeus F. Parks says
The end of the year is almost here, and if you can find time in between last-minute shopping and spiked eggnog, then take an hour or so to reflect back on how you spent your money this past year. Creating yearly financial goals is a great habit to form when building a healthy financial future. Even if you don’t reach all of your goals, if you set them too high, or set them too low, they serve as a motivational tool throughout the year to strive toward something. If you don’t know where to start when it comes to making financial goals, start with what you spend and how much you spend on it.
I don’t think you need to wait for a particular time to review your goals! I monitor my progress daily/weekly/monthly and adjust my efforts to reach milestones.It is a good way to make sure you are making progress particularly for longer range goals.
Can’t agree more with the reasoning in this article. I seriously believe that one can get far with discipline (budget) but you can get so much further with motivation (changing habits and attitudes). Good one, Krant!
Thanks! Most positive outcomes require a positive attitude and approach to the problem. Therefore, changing your habits are more important than a budget.
You can have the best on paper budget in the world, but if you haven’t changed the behavior that caused you to overspend in the first place then it’s all for not. Your advise on trying something different is good. If you don’t try something new, your bound to repeat the same mistakes.
Absolutely! You have to look for the reason why you are in that position. If you make behavior changes, you are more likely to be successful.
Lindsey @ Cents & Sensibility says
I like you’re idea of being proactive instead of reactive. I like to try and take it a step further by being the organizer of social events. If I am the one organizing (like a potluck and board game evening) and inviting, then I get to socialize with my friends and side step a lot of those conversations.
It can’t be avoided entirely but by taking the lead, you’re setting the stage for succeeding with meeting your financial goals and maintaining your friendships!
Being proactive, you can change not only your own behavior, but influence the entire group. When I vacation with friends, I end up leading the arrangements because they know I can find a less expensive way to put it together.