The Annoying Psychology of Why You Can’t Stick to a Budget

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There are few words in the English language that conjure a sense of dread faster than the word budget. According to Gallup, two-thirds of Americans don’t even bother creating one. Budgeting not only requires math, which is unpleasant enough, it also requires determination. In order to actually stick with the budget, you need motivation — and sometimes a lot of it. Tools like You Need a Budget tap into this motivation and get users to feel they have more control over their financial situation.

But the main problem with budgeting is its approach, says Brad Klontz, a psychologist and certified financial planner. “I think the entire concept of budgeting is flawed,” said Klontz. “Your emotional brain responds to the word budget the same way it responds to the word diet. The connotation is deprivation, suffering, agony, depression.”

Klontz says hearing the word diet makes us feel there’s a famine coming. We can muster up the motivation to take on that famine in the short term, but in the long term, research shows that diets don’t really work. As researcher and University of Minnesota professor Traci Mann explained to the Washington Post, you start see food differently when you diet. “[Food] actually begins to look more appetizing and tempting,” Mann said in the article. “It has increased reward value. So the thing you’re trying to resist becomes harder to resist.” Budgets work similarly, Klontz says, because instead of thinking about what you want, you’re thinking about what you can’t have, whether it’s a new gadget or a night out. A budget implies scarcity, and it’s our instinct to overcome that scarcity the best way we know how: spending our money.

To combat this, he suggests working with your psychology, and not against it. Rather than a budget, Klontz recommends a spending plan, something he says is different from a budget in some subtle but vital ways. Unlike a budget, a spending plan is focused on your goals. You first sit down and think about the things you most value and enjoy, and get specific about those things. So if you want to take a vacation, your goal becomes, “Take a trip to Barcelona in 2018.” Klontz even suggests creating visual images for your goal. You might change your desktop background to a beautiful Barcelona landscape, for example. Once you have your goal in mind, build a plan to save for that goal and then crunch the numbers. Figure out how you’ll move around your money to make it happen. Yes, in its implementation, a spending plan is virtually the same thing as a budget, Klontz says. It’s the approach that’s different.

That approach is crucial to your success, though, because money management is so reliant on behavior. A spending plan focuses on supporting your goals, which suggests you might have some control over your financial situation, and even a small sense of control can be a huge motivator. “You get really excited about things you want to spend money on. And then you want to cut back on the things that don’t matter,” Klontz said.

Reframing a budget as a spending plan can make a difference, but the mechanics can still be tricky. We asked Klontz for more details.

Assume you’ll overspend.

Managing your money can also be challenging because we tend to underestimate our spending. A 2008 study published in the Journal of Consumer Research asked subjects to estimate their spending in the next month or over the course of a year. Interestingly, estimates for the next month were pretty inaccurate, whereas subjects had more luck predicting their spending for the year.

You would think it’d be easier to estimate more immediate spending, but subjects were less confident about their estimates for the entire year, which led them to embrace what researchers called a “confidence-induced adjustment.” In other words, when subjects were unsure of their ability to estimate for the entire year, they padded on some extra spending to make up for it, which made for a much more realistic estimate. The takeaway? Next time you budget, err on the side of overspending.

“So many of us spend unconsciously,” Klontz said. “Most of us have no idea how much we’re spending, so before you dive into reallocating your money, you need to know where it’s actually going.”

Aside from tracking your spending regularly, cash is an easy way to get a better idea of exactly where your money goes. Most of us pay for everything with a credit or debit card, which makes it a lot easier to underestimate our spending. A study from MIT found that subjects were willing to spend 64 percent more on a pair of basketball tickets when using a credit card over cash. Cash makes the purchase more tangible, forcing you to think twice about your spending.

It’s harder to use cash for some purchases, but it’s particularly helpful with certain problem spending areas. “If you’re buying gas for your car, there’s less value in using cash because people usually don’t have a problem controlling their spending with something like that,” Klontz said. “But with discretionary spending, like gifts for the holidays, using cash can be very helpful.”

Connect your future self with your present self.

At its core, budgeting is about ensuring you regulate your spending in the present so that you’ll have enough of it for the future. The problem is, most of us have a really hard time linking the future to the present. We see our future self as a stranger, and it’s hard to save money for a stranger. Researchers from New York University found that when subjects had a clearer vision of what their “future self” looked like, they saved more money. They split study participants into two groups. They showed the control group a normal photo of themselves, and the other group a digitally altered photo of themselves at age 70. Oddly enough, the subjects in the “future self” group saved twice as much money for retirement.

The lesson here isn’t really about focusing on the future, though. It’s more about bringing the future into the present, Klontz says, and in his own research, currently under review, he discovered that people also save more just by sitting down and thinking about their ideal retirement. When subjects could make the future more relatable, they were more apt to bridge that gap and stick to their budgeting and savings goals.

Also, some people have a negative idea of what it means to retire, which also makes it tough to save. If you think retirement means sitting around all day and watching reruns of Maury, for example, you’re probably not going to be very motivated to save up for that lifestyle. However, if you can be specific about what you want to accomplish in retirement and visualize those activities and experiences, that’s a big leap toward bridging the gap, Klontz says. “You basically create a very exciting vision of your retirement and what you’re really passionate about doing. You save more when you do this. In our research, people are doubling the amount they’re saving.”

Break up big goals into smaller ones.

Finally, even when you do have a clear idea of what kind of future you want, it can still be hard to stick to your goal in the long term. Eventually, your motivation dwindles and you’re tempted to spend the money on something more immediate, like a fancy meal or a new pair of shoes. You figure you’ll make up for your lack of saving down the road.

To combat this line of thinking, first break your savings goal into smaller increments. Saving a million dollars for retirement seems like a pipe dream for most of us. Saving $400 a month, while still daunting, is a lot more digestible.

Again, it’s about bridging the gap between the present and the future, so breaking up a big goal in this way makes it a lot more present and actionable. It’s sort of like bringing your “future self” into the present. Research suggests you’ll save more if you think this way, too. A 2014 study used two different approaches to get people to save. Some subjects were told to save linearly, and think of the future as completely separate from the past or present. Those subjects were instructed:

This approach acknowledges that one’s life is made of separate and progressive time compartments such as the past, present, and future. We want you to think of the personal savings task as part of such a linear progress. Make your saving task a planned one: just focus on the total amount of your savings goal for the future …

Other subjects were asked to think cyclically, and imagine the future would resemble the present. Subjects in this group were given the following instructions:

The future will be exactly like the present: if you save money now, you will save in the next pay period. If you don’t save money during the present pay cycle, it is likely you won’t save money in the next cycle. We want you to focus on your personal savings in the present, and that is all. What’s more, at the end of the day, you will be able to look back and see how much personal savings you have achieved.

Across all of their studies, researchers found that people in the cyclical group saved 78 percent more than subjects who were instructed to think about the future linearly. The study suggests that it’s more effective to focus on the process, rather than the end goal when it comes to saving. Incredibly, even a small mind-set shift like this can make a world of difference when it comes to managing your money.

The Annoying Psychology of Why You Can’t Stick to a Budget