There is no question the monthly budget is the most impactful tool you have in your DFMD toolbox to aid in taking control of your finances. It's hard to build a debt-free dream without a plan, and a budget is simply that - a plan for your money.
Sure, you can build wealth and become debt free without a budget, but it's much harder to do than with a budget.
You can wander into debt, but it's hard to just wander out without a plan.
The challenge is most people tend to struggle with budgeting. In fact, in a recent DFMD survey, budgeting challenges was the number one topic readers wanted to hear more about.
In this blog we'll discuss some of the most common reasons people fail with their budgets and how to be proactive in dealing with these possible failure modes.
What stands out in discussing the topic of budgeting is that when you get right down to it budgeting is simply a behavior, and as we've written about previously, getting out of debt and building wealth is not really about money, but about living out the right behaviors.
What are some of the most common budgeting problems?
1. Budgeting takes too long.
The longer something you don't like to do takes, the more likely you're not going to do it, especially as a busy physician! A typical budget is likely to have 50 or more items to sort through and decide how much you are going to spend on each month. This could take hours to complete (not true, but often believed to be true)!
2. Budgeting is overly complicated.
It's not that the math is overly complex, but the process (i.e. paper and pencil, Excel spreadsheet, etc.) of creating a budget can quickly turn into overly complicated Excel formulas, graphs, charts, what-if scenarios - the list goes on-and-on. And, as physicians who are used to dealing with complexity, many of you can't help but overcomplicate what could be simple.
3. A budget is too restricting.
This is probably the number one reason many have a negative view of a budget. There is truth that a budget is inherently designed to restrict your spending to what you've agreed to spend before you spend it. If you don't like following "rules" or just don't like having to stick with a plan to do anything a budget is very likely to fail.
4. Tracking expenses is a painful and tedious process.
This problem has become an even greater issue than before since most of us use debit and / or credit cards to buy every little thing. We can remember a time when it seemed ridiculous to grab a soda and put it on a card, but now even for transactions of less than a dollar we whip out our cards. This can create 100+ transactions a month to deal with tracking.
So what's the solution?
How can we deal with these issues and many others that keep so many from doing a budget when nearly everyone knows a budget is helpful for getting out of debt and building wealth?
We would argue the solution lies in finding an effective and efficient budgeting process that takes little time to complete each month, yet allows you to know at any moment in time (or at least on a weekly basis) how well you're doing in keeping to the limits of your budget.
In essence, what we're prescribing is a method to develop the habit of budgeting each month. James Clear offers some great advice on developing positive changes in your life in his book titled, Atomic Habits.
Clear writes there are four laws in creating a new habit:
When something is obvious, attractive, easy, and satisfying it's more likely to be done, and eventually become a habit.
Below we've outlined each of the laws and some ideas to consider. For example:
Make it obvious (habit stacking) - After paying the mortgage each month, we will complete the monthly budget.
Make it attractive (create a motivation ritual) - Once a month we'll enjoy a nice meal out, and directly after we'll create our budget.
Make it easy (automate your habits) - We will begin using technology such as Every Dollar to automate the budgeting and tracking process.
Make it satisfying (use a habit tracker) - We will set a goal to complete a monthly budget by the first of each month for 6 months in a row, and will reward ourselves with (whatever motivates you and costs little to nothing) when we accomplish the goal.
The first few months will be a challenge, but don't give up! It gets easier as you go forward, and the process will take only minutes each month once you have your spending categories nailed down.
We only spend 30 or so minutes each month doing our budget and use the Every Dollar app that over 7 million people are using. We also have it linked to our bank accounts to eliminate the need to manually enter data.
The question is - how bad do you want to become a DFMD? Is it worth a few minutes each month? We would argue, yes it is!
We're here to help and would love to inject some hope into your situation if you need it. Schedule a free 15 minute call with us and we'll get to know your challenges to help give you a nudge in the right direction.