Americans hate to budget.
However, reframing the concept can yield more positive results, experts said.
They “cringe” at the word budgeting, said Winnie Sun, co-founder of Sun Group Wealth Partners, based in Irvine, California.
“It’s sort of like telling someone they need to diet and eat healthy,” said Sun, a member of CNBC’s Advisor Council. “It’s a very overwhelming concept for the average consumer.”
About 68% of consumers say a budget would help them reach their personal and family goals, yet 40% say they have never had a budget, according to a poll by the CFP Board, which oversees the certified financial planner designation, published in 2019.
Sun estimates more than 60% of her clients “feel as if they’re literally going to suffer” if Sun mentions budgeting.
Conversations around budgeting are generally distilled into two camps: spending on needs (i.e., essential items) and wants (nonessential items).
This framework is meant to help weigh one’s financial priorities, thereby keeping spending in check, wrote Sarah Newcomb, a behavioral economist at Morningstar.
But the exercise can turn budgeting into a feeling of deprivation — and people rebel as a result.
The classic financial advice of slashing spending on wants such as entertainment, social connection, dating and education, for example, is at odds with “the natural process of human motivation,” Newcomb wrote.
“Yes, the numbers must work, but your life must work, too,” she wrote. “Otherwise, you’ll internally resist your budget, and we all know how that can play out.”
How you should reframe budgeting
Financial experts recommend reframing the budgeting concept as a positive rather than a negative.
For example, households can think of it as “raising funds” instead of cutting spending, Sun said.
They can also establish financial goals. For example, what do they want to do with their extra funds? That may be paying down debt, saving for the long term or growing a pot of money for shorter-term goals such as a vacation, Sun said.
“We let the goals lead the act of budgeting,” she said.
“For me, a budget is not about restricting myself,” Lynnette Khalfani-Cox, a personal finance expert known as the Money Coach, said during a Q&A with JPMorgan Chase and Essence. “It’s about choosing how I allocate my resources and how I spend my money.”
Similarly, Newcomb recommends identifying new strategies that can meet one’s needs and simultaneously save money.
Newcomb gives the real-life example of a husband and wife who argued about how much money he spends on his boat each year. His needs are about self-actualization: He enjoys the wind in his hair and the sun on his face. She seeks safety and security, which are also important to her quality of life.
Here, the husband found a new strategy: offering sailing lessons to teens at his yacht club, which helped offset the cost of his boat and allowed his wife to funnel that additional income into savings.
There are other easy ways households can find extra money without sacrificing much, Sun said.
For example, households with more than one streaming service can opt to use one service for six months then change to another for the next six months, decreasing their streaming budget by 50%, she said.
Households with an ample emergency fund intact can consider shopping for auto and other insurance policies with a higher deductible than their current policy, likely lowering monthly premiums, Sun said. In the event of an insurance claim, the emergency fund can meet the deductible, she said.
They can also commit to doing curbside pickup when shopping for groceries, for example. Shoppers make purchases more mindfully and avoid in-store impulse buying, Sun said. She finds clients generally save 20% to 25% or more on their groceries this way.
Any additional cash flow can immediately be used to pay down debt, or go into long-term savings or toward a short-term goal, she said.
Ultimately, if there is a money issue, she challenges clients to decrease their spending by 5% to 10% during the month. After each week of success, she encourages them to celebrate by making memories instead of debt: perhaps by doing something with friends, or hanging out at a park, beach or someone’s backyard.
“You have to have a joy to replace that negative,” she said.