Personal Budgets Sound Restrictive - Create an Automated Spending Plan

Maybe it is just me, but it tends to feel like a constant juggle between living your best life now and needing to allocate money in a way that brings you joy today and a sense of pride tomorrow. I have major FOMO (Fear of Missing Out) moments. Who doesn’t? We don’t live forever, but we also do not know how long we will live. This is where my monthly, weekly, and sometimes daily dilemmas derive from. I know the life I want to be able to live, but on the flip side I see the work and patience it requires. Being inundated with the reminders on social media that we are only young once and need to live “your best life now” rarely seems to offer solace.

Social media (technology in general) is a great resource to connect, become inspired, grow our networks and to be intentional, but it can also cause us to spend our time and money in a way that might force your future self to regret some decisions. We like to be free, feel liberated and to experience all that life has to offer. The thought of a budget sounds like the exact opposite of that. It feels as though it is there to restrict and suffocate our dreams and life’s adventures. Does it really, though? That is why you should create a spending plan instead of a budget. A budget can do just that, restrict. If you are having major spending concerns, then maybe a full-blown restrictive budget is not a bad idea. A budget is more of a short-term fix rather than a long-term solution.

A spending plan says each and every dollar you actively bring in has a purpose. Go on that vacation, check out that new bar downtown, get that new furniture for your house. All while planning for your future because on top of doing all of those things for the present, you have specific money being allocated for investments — your future.

Intentionality. That is the behavior required to ensure that your future self can look back at your present self and be proud of the decisions that are presently being made. Most people think of their future selves as a stranger they see on the street. They may see the stranger occasionally (their future self), but they never give a second thought about them.

To ensure that stranger (your future self) becomes your best friend, one of the best financial tricks you can do to ensure you are investing for your future is by automating your spending plan. There are a minimum of three areas you need to automate to ensure that your present and future self is taken care of and thriving:

1. Savings. This is where you need to pay yourself first. If you do not already have a savings account, I am an advocate of using Ally Online Savings simply because they pay you a much higher interest rate than a standard brick and mortar bank (it is FDIC-Insured as well!). Their current interest rate is 2.25%, so please do not have your money losing value for you in a standard account. In addition to this, you can easily automate how much money you want to go into that account. Set the amount, the time of the month it deposits, and don’t think twice. There is a vast amount of information on the internet and every person will tell you something different, but you need to automate money overtime to go into a savings account that will equate to a total of 3–12 months worth of expenses (emergency fund). Set a minimum amount that you want in the account, and do everything you can to ensure you maintain that level. One quick side tip — continue to automate money into the savings account even when you reach your minimum desired amount. The money you will continue to generate may be able to be invested, used for a down payment on a house in the future, or to pay off debt.
2. Investing. Outside of ensuring that you are contributing to your employer based 401(k), setting up automatic monthly contributions to your personal investment account is just as important. This is what sets you apart from retiring at 65 like the rest of the country or being able to live the life that most will not be able to. There are multiple broker accounts that you can use, but a few of my favorites are TD Ameritrade, M1 Finance, and Betterment. If you can find a way to automatically invest an additional $150 per month into an investment account (in addition to your 401(k) at work), historically speaking, you would be able to generate an additional $225,000 over 30 years at an 8.5% annual rate of return. Between the savings and investment account, you and your future self are already becoming better friends. A few clicks and re-allocation of some funds can quite literally change your future self forever.
3. Spending. Statistically speaking, more people like to spend than they do save and invest (I mean who doesn’t, we all do), so I saved this part for last. Just as we have automated our savings and investment accounts in the above two categories, now we can ensure we are not over spending by automating our spending account. This will require continuous improvement and tweaking due to fluctuating income and expenses, but create specific spending categories for things that you need to pay weekly, monthly, or even annually for. I personally love using Qapital. What Qapital does is it allows you to create specific categories (i.e. Clothing, Vacation, Car Payment, Taxes, etc.) and allocate money automatically to those specific areas.