Budgeting = Awareness

I used to think budgeting was just for people who spent too much money. You know, people who can’t payoff their credit cards each month, go into unnecessary debt, and obviously don’t live within their means. Budgeting just means don’t waste money or spend it on stupid things you don’t need, right?

Even just the word “budget” has negative connotations for most people. It makes people think of cutting back, limitations, and not being able to buy what you want. My thoughts around budgeting completely changed when I realized what budgeting is actually for.

Carl Richards introduced me to the concept of budgeting = awareness. “Budgeting isn’t just about numbers. It’s about awareness. In fact, budgeting equals awareness. Its purpose isn’t to punish ourselves for spending money; it’s to become very aware of how we’re spending our money so that we have enough for the things that matter most.” - The Behavior Gap. It’s much less about cutting back and much more about just having awareness of how much you’re spending in different areas. I’m big on aligning your spending with your values and the positive impact that can have on your finances and happiness in general. How can you align your spending with your values if you don’t actually know how much you’re spending?

For example, travel is really important to Riley and me. We can say travel is important to us, but if we spend too money much on clothes and eating out, we might not have enough money to travel as often as we’d like to. Generosity is also important to us. Sometimes, if we don’t have a good handle on our spending, giving can feel more like a stressful obligation than a joy and privilege. There’s a deep joy in giving and it truly is “more blessed to give that to receive.” - Acts 20:35. You can rob yourself of the joy of giving by feeling like you don’t have enough to be generous. The only way to actually evaluate whether you’re spending in alignment with your values is to have awareness of your spending. “Budgeting is important not only because it reminds us not to spend so much on gasoline or takeout, but also because it helps us cultivate the awareness we need to save and spend in accordance with our values.” - The Behavior Gap. This is budgeting.

This was my biggest blind spot in our personal finances for years. Despite thinking we were living within our means, it felt like our credit card bills just kept creeping higher and higher every month. We’d say we’re spending too much money, but without awareness on where our money was actually going, it felt impossible to know what to cut back on. Is it eating out? Groceries? Clothes? Technology? With no knowledge of where we were spending our money, we had to guess (read argue) about what to spend less on.

Then at the start of 2022, thanks in large part to redefining budgeting from “cutting expenses” to “gaining awareness,” we finally created a budget. It’s not hard to create a budget. There are tons of apps that make it easy. We spent some time defining categories (travel, groceries, eating out, etc.) and assigned a monthly budget to what we thought were reasonable amounts to spend in each category per month. Then we simply tracked our spending going forward and compared it to the amounts we had in our budget.

The next few months were eye opening! What we thought we were spending in many areas was massively different than what we were actually spending. Just knowing how much we were spending in certain areas helped to reduce our spending. Knowing we’re only 1/2 way through the month and 3/4 the way though our eating out budget would motivate us to make a few extra home cooked meals. Seeing how much we were paying to different streaming services motivated us to pair down and only keep the one or two that we used most often.

But it really has not felt like cutting back. Spending less in areas we don’t really care about has allowed us to spend more in ways that make us happy. We’ve been able to travel more and give more generously over the last year than we’ve ever been able to in the past! It’s amazing how just knowing what you’re spending can impact your behaviors for the better.

Budgeting is mostly viewed as a short term thing. It helps you get a handle on your cash flow (money coming in minus money going out). But budgeting has long term implications as well. The two biggest factors in your ability to be financially independent (i.e. retired) are your wealth and your spending. Without knowing your spending, you have no idea how much money you need to retire. It’s impossible to define your “enough”. You’ll either over-work and over-accumulate or you’ll under-save and have to work longer than you want or drastically reduce your lifestyle in order to retire. Having a budget and knowing how much you spend gives you the information you need to create a finish line.

I’m now convinced that everyone should have a budget and be aware of their spending. It’s an important part of being a responsible steward of your resources.