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Traditional budgeting doesn’t work

Welcome to Financial Foundations, a mini-series of Financial Feminist, brought to you by State Farm. During each episode of this limited series, we’ll be tackling financial basics like budgeting, investing, debt, and what it really means to be a Financial Feminist to help you get on track no matter where you’re at with your money journey. Through short, actionable episodes and simple homework exercises, I’ll help you build a financial plan you’ll actually want to stick to. Thanks again to our sponsor, State Farm, for making this series possible. Like a good neighbor, State Farm is there.

Psychologists agree –– when you operate out of deprivation, whether it’s dieting or budgeting, you’re more likely to over-indulge in whatever it is you are most avoiding. Budgeting for so long has either been taught in schools as a part of an outdated curriculum or, worse, not at all.

There’s good news –– budgeting doesn’t have to suck.

Budgeting does not mean you can’t ever have a latte, or buy organic, or even say no to a vacation. Creating a budget is as personal as your favorite band, which means that these one-size-fits-all solutions might be more the problem than you. In today’s episode of Financial Foundations, brough to you by State Farm, Tori is walking you through her favorite budgeting system and the creation of what she calls Values Based Spending to help you build a budget that’s custom tailored to your lifestyle and goals.

You’ll learn:

• Why deprivation DOESN’T work

• How to separate out your spending into categories

• The Values Based Spending System

Journaling/Homework: Checking In

• How did it make you feel to write out your value categories? Excited? Nervous? Something in between? Journal about it!

• Start a new money diary –– try to take a second to think about your money categories before spending, and then come back for the next episode to see how you did!

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Transcript:

Tori Dunlap:

Welcome to Financial Foundations, a miniseries of Financial Feminist brought to you by State Farm. During each episode of this limited series, we’ll be tackling financial basics like budgeting, investing, debt, and what it really means to be a Financial Feminist to help you get on track no matter where you’re at on your money journey. Through short, actionable episodes and simple homework exercises, I’ll help you build a financial plan you’ll actually want to stick to. Thanks again to our sponsor, State Farm, for making the series possible. Like a good neighbor, State Farm is there.

Hi, Financial Feminist, welcome back to the Financial Foundation series. Kristen and I were just trying our hand at our best Irish accents. Hers is a lot better than mine, but last week, two weeks ago, we talked about the money date and getting your financial game plan together. I left you with some homework and questions to ponder on, so if you haven’t listened to that episode yet or done the homework, please head back over and check it out. This Financial Foundation series is meant to be done in order because we’re going to need that money diary activity right about now.

A reminder from the previous Financial Foundations episode of the financial priority list. Financial priority list is as follows: One, emergency fund. Two, paying off high interest debt like credit cards. Three, investing, prioritizing investing while starting to pay off your lower interest debt, and finally, saving for what I call the big stuff. It’s buying a house, having children, starting a business, et cetera. Let’s talk though about how budgeting fits into this.

Now, I said the word budget and you want to vomit. I get it. You have been told that budgeting means restriction. You have been told that budgeting is the not fun thing you do in order to be an adult. This isn’t just me putting on my personal finance expert hat, but truly budgeting is not a punishment. Budgeting is not the thing that keeps you from doing things. It’s actually the exact opposite. Budgeting is a permission slip, and if you treat money like a diet, it will fail. Your relationship with money will not go well because fun fact, 99% of diets fail, and that’s not a willpower thing. That’s not you didn’t want it bad enough. That’s literal psychology. If you tell me I can’t have fried chicken, all I’m going to do is want fried chicken. Again, not willpower, literal psychology. This all or nothing approach also just doesn’t work. It’s not sustainable, it’s not enjoyable, and if we treat budgeting the same way, it’s not going to work.

So rather than thinking of budgeting as depriving, deprivation, punishment, it is actually a permission slip. We need to be able to spend our money on the things that we love while also balancing savings. Budgeting is the way that we make sure that we get to enjoy a pina colada on the beach, guilt-free, because nothing tastes worse than that cocktail on a beach vacation with a side of credit card debt, or with a side of guilt and unease because you know you can’t afford it. It is the permission slip to spend unabashedly on the things you love, while also knowing you’re not going to have the guilt later of being like, “Oh, I didn’t save at all. I didn’t take care of myself this month.

In my book Financial Feminist, we break down what I call the three-bucket budget. The three-bucket budget is simply bucket one, your expenses, everything you need to eat, sleep, breathe, move, and live. The things that are absolutely necessary to your life. This is your renter mortgage, your insurance, your groceries, daycare, the things that are absolutely necessary to your life. Bucket number two is your goals. Things like saving that emergency fund, becoming debt-free, saving/investing for retirement, doing all of those big stuff things we talked about before. And finally, bucket number three is your fund bucket. It’s everything else, and it should be made up of the things that you’ve determined are valuable for you.

How do we determine what’s actually valuable for us? Well, I’ve come up with what I call the three value categories. These are the three areas in your life that you get the most joy from your discretionary spending. This is values-based spending. It’s this idea, as my lovely friend and fellow finance expert, Paula Pant says, “You can afford almost anything. You just can’t afford everything.”

So where do we want the majority of our discretionary money to go? Where do we want the majority of our bucket three money to go? We determine our top three value categories. These, again, are the three areas in our lives that we get the most joy. They’re going to be different for every single person. Mine are traveling. I love spending my money on friendmoons with Christine. Food out. I love a good meal at a restaurant. I’m a huge foodie. And nesting, and really by nesting, I mean plants. If you have listened to any sort of video version of this podcast or seen me in a video, you know that I love plants very, very much. They’re my little babies, and I love spending my money on them. Those are the three areas in my life that I get the most joy.

The goal with figuring out our values and where we want the majority of our money to go is to, again, not restrict. It’s not don’t spend money. It’s making sure that your hard-earned money goes to things that you actually like. I’m done with lukewarm in 2023. If parts of your life and your spending make you feel lukewarm, nah, we’re doing piping hot. I am doing piping hot with who I date, with the business, with my purchases. I want you to love your life, and that shouldn’t be ridiculous. I want your hard-earned money to go to things that you actually like.

So if you are spending your money out of fear or as a coping mechanism or just to feel something, or if you’re spending a bunch of money on things that you’re told you should purchase… I know for me in my early 20s… I am not a coffee drinker. I maybe have a coffee a week, but when I got into corporate, I wanted to feel like a real adult. And so I would buy Starbucks and I didn’t actually enjoy it all that much. It jus
t gave me anxiety, but I wanted… Literally, I felt like an adult when I had a coffee cup in my hand. And I know that may sound ridiculous, but I think we have a version of this. Everybody has a certain version of this. I spend money on alcohol even though I don’t like to drink so much, but because it’s what I feel like I have to do. Or I go and I travel and I don’t really like museums, but I feel like I have to go. So I spend money at a museum. There’s variations of this for every single person in the world and for you listening.

So what I encourage you to do is think about, “What purchases absolutely light me on fire? What do I absolutely love spending the money I worked really, really hard for?” Because I don’t want it to go to shit you don’t even like. I don’t want it to go to things that you don’t feel passionate about when you could be spending money on things you actually like. You could be taking that money and spending it on something that actually feels relevant for you and that is actually in line with your values, or you could be using it to become one step closer to debt-free. Or you could be putting it in your emergency fund, or you could be using it to buy the house that you’ve always wanted.

So I just encourage you to think about, again, budgeting doesn’t mean restrictive values-based spending, doesn’t mean restrictive. It actually means we’re giving you the permission to spend unabashedly on the things that you love and balancing that with making sure you’re taking care of yourself. So when we’re thinking about our three-bucket budget, first bucket, our necessary expenses, second bucket is our goals, which is the financial priority list, your emergency fund, your debt, your investing. Finally, bucket number three should be made up of those three value categories. It should largely be made up of those three value categories, the three areas in your life that you get the most joy.

All right, here’s our first exercise, a little audience participation moment. I need you to pull out your money diary that you did a couple weeks ago and either highlight or start a list on a separate sheet of paper. Put all of your expenses into categories and then start adding them up. These categories can be things like dining out, entertainment, home/nesting, art, events, travel, shopping, et cetera. These are some good basic categories. Once you have divvied up your purchases into some of these categories, my question for you is, where are you spending the most? Where are you spending the majority of your money? And does that line up with the three categories that you said were your value categories?

If I am saying that my three value categories are travel and food outs and nesting, but I’m spending the majority of my money on something like coffee or clothes, I either have a misalignment of my values, the things I thought I care about. I actually care about less than where the majority of my money is going, or which is more likely, I’m not spending money according to my values. I am maybe impulse spending more. I’m emotional spending more, and I have a beautiful opportunity to start aligning my spending with the values that I have set, with the things that I have said are important.

So again, first we’re going to define what our value categories are. These should be three categories in your life where you want the majority of your discretionary money to go. And then you’re going to pull out that money diary you did and view your purchases through the lens of those value categories, and ask yourself if your purchases right now are aligning with your values, and if there’s things that you can tweak about how you’re currently spending your hard-earned money. All of this is within the context of that three-bucket budget. And again, more information in my book about this. It’s in chapter three if you’re following along.

Budgets as a reminder are not meant to be restrictive. They’re not meant to be punishments. They’re not meant to be the thing that is preventing you from the YOLO life that we’ve all dreamed of. It’s instead the plan. It’s instead… What is it? Bumpers and bowling. It’s the thing that allows us to spend our hard-earned money on things that we love while also making sure that we’re taking care of our financial goals.

You all know we love some actionable homework, and we’ve committed to ending these Financial Foundations episodes always with a little bit of actionable things you can do to feel better about your money right now. So let’s do some journaling or reflecting first. I’m going to ask you some questions. How did it make you feel to see your value categories? There’s no judgment. I just want you to notice what comes up for you when you’re looking at your budget and you’re spending, and you’re looking at what you say you value versus where your money actually might be going. How does that make you feel? Second, what can we do about it? What are some little actionable tweaks that we can make in order to start better aligning our purchases with our values, and not only making sure we’re spending money on fun stuff and present day stuff, but also making sure that we’re factoring in future us? There’s a balance to strike here. So first, how did it make you feel to see your value categories? And two, what do you want to do? What do you want to do about it?

We also encourage you to start a new money diary. We’re going to do the practice that we did in the first episode again, but this time we’re going to try to take a second to think about our money categories, our value categories before we actually spend the money. So when you’re at the register or you’re about to add something to your cart and check out virtually, you’re going to ask yourself, “Does this align with the three things that I’ve said I value?” Now, please don’t get me wrong, although clothes is not one of my three value categories. If T.J. Maxx has a sweater sale, I’m in there like swimwear. It doesn’t mean that you can never spend outside of your three value categories. It just means to be more mindful and to make sure that the majority of your discretionary money is going to the things that you love most. Not that somebody else loves, or not what you think you should like, but what you actually love. Because a reminder, this is your hard-earned money.

So we’re going to start that new money diary, and we’re going to just take a second, again, without shame and judgment, to reflect on those value categories before we spend the money. Then I want you to come back for this next episode of the Financial Foundations series to see how you did.

Up next, we are going to talk about debt in this next episode, and I know again, you just heard the word debt and you’re like, that feels scary and full of shame and fear and judgment. But you know me. We’re going to have a nice soothing conversation about debt with a lot of actionable resources for you to start paying off your debt and feeling better. We are talking about all kinds of debt, so whether you have student loan debt, credit card debt, a mortgage, a car loan, medical debt, we are going to cover actionable things that will make sense for you and that will give you a path forward to becoming debt free.

We are so happy you’re here for episode two of Financial Foundations. As a quick reminder, these are some nice, quick actionable episodes for you to have a quick win financially so that you’re feeling better about your financial life in just a short amount of time. And thanks again for joining us for this episode. Will you make sure to let us know if you’re enjoying this series? On Spotify you can drop us a comment in the audience int
eraction area, and you can leave us a review on Apple if you’d like, and you can also send us a voicemail with questions about any upcoming topics. We’re so grateful you’re here, and we’ll talk to you soon.

A huge thanks to State Farm for supporting our mission here at Her First $100K and making the Financial Foundations series possible. Like a good neighbor, State Farm is there. Neither State Farm nor its agents give tax or legal advice.

Thank you for listening to Financial Feminist, a Her First $100K podcast. Financial Feminist is hosted by me, Tori Dunlap. Produced by Kristen Fields. Marketing and administration by Karina Patel, Sophia Cohen, Kahlil Dumas, Elizabeth McCumber, Beth Bowen, Amanda Leffew, Masha Bachmetyeva, Kailyn Sprinkle, Sumaya Mulla-Carillo, and Harvey Carlson. Research by Ariel Johnson. Audio Engineering by Austin Fields. Promotional graphics by Mary Stratton, photography by Sarah Wolfe, and theme music by Jonah Cohen Sound. A huge thanks to the entire Her First $100K team and community for supporting the show. For more information about Financial Feminist, Her First $100K, our guests and episode show notes, visit financialfeministpodcast.com.