Creating a budgeting habit

Continued budgeting without interruptions can be hard to keep to. Creating a habit out of budgeting should help with developing a budget, and keeping it up to date. What actions can an individual take to build a habit out of budgeting? What are the blocks that can work against continued budgeting?


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Applying habit building to budgeting

Money Bear Club has discussed the benefits of habits in Keeping a budget: importance and solutions.

Even so, before applying habit building to budgeting, it is necessary to know several facts. These are: how habits are built, and what are the stages of habit building.

Habits are built through chain responses.

habit formation simplified
Simplified habit formation. Copyright: Money Bear Club.

According to scientist Wood, habit building emerges when people repeat patterns that help them to achieve their goals. On the biological level, acquired responses lead to information reorganization. And information reorganization leads to actions that are directed at responding to the context, rather than goals.

A few applications for budgeting emerge from these theories.

There are three stages to building a goal. Moreover, as humans build habits, the goal’s role is reduced, and responses begin to originate based on context.

This means that a habit won’t be built well or built at all, if a certain stage of goal building is completed incorrectly. Also, ensuring the same environment and circumstances related to a certain action, can help to keep to a goal.

When building a budgeting habit, it can be important to choose more direct approaches, since they help to achieve goals easier — one of the stages of habit building. Choosing one place to do budget keeping in, and certain circumstances when budget keeping is done (e.g. every Wednesday evening), will help to stick to this habit.

From an unconventional perspective, a habit does not always lead to best outcomes. Getting too much into habit, and not “mixing it up” can also be harmful. A theory has been proposed that as time goes on, an activity pushed by a habit diminishes the intention of the individual.

The theory has been proposed in the context of information systems. Yet, it can also be a tool for avoiding obstacles related to budgeting.

For individuals who need emotional motivation to stick to a certain activity, doing budgeting out of habit could decrease the intention to do it over time. Changing the environment related to budget keeping, should help to add variety to this habit. Likewise, to reduce the decrease of intention.

Habits help to overcome monotony of budgeting

Regular budgeting can easily become a dull task. The rush of satisfaction of taking control of own or family’s finances and bettering them, tends to fade. When the largest financial obstacles will be overcome, budgeting will eventually become a monotonous task. The new, smaller achievements, will pale in comparison to the largest gains of early budgeting days. These experiences tend to be very real for many new budgeters.

It’s possible to make budgeting a more exciting activity. Many find that the gamification of tasks or chores helps. A communal experience (such as budgeting together with family members or friends), can also push towards lower monotony associated with budgeting.

Nonetheless, research shows that the monotony of regular budgeting, even if boring, leads to great things.

The research performed by Loibl, Kraybill, and Wackler DeMay, has found that habits have a large effect on savings amounts. Moreover, sticking to budgeting as a habit “[…] reduced the stress of financially difficult situations.”

In essence, the action that causes the feelings of dullness, is also the cure for ending the dullness. Or, making it more bearable.

Habits associated with budgeting have been found to have a large and positive effect on financial matters of budgeters. Hence, sticking to them then should help to minimize other negative feelings associated with financial strain. Habits will also help to arrive at the budgeting goal earlier.

Repeated budgeting should also help budget keepers that are looking to keep their current financial state or to improve it marginally. When it is known that a budgeting habit can help to save more, remembering this benefit can act as powerful motivation for continuing this activity.

Daily entries

Daily budget entries are the goal of many budget keepers. With incomes and spending growing, daily entries can be the best way to not let any euro or dollar to slip by. As with any choice, disadvantages related to daily budget entries exist.

From one side helpful, from another, not a good fit for everyone: that’s the duality of daily entries.

Daily entries won’t be a good solution for people who don’t have free time each and every day of the month.

There are many different personal and professional circumstances that make certain days more busy than others. Some circumstances can be so time consuming, that they won’t even leave time for budget keeping. Hence, to avoid unnecessary stress, it is better to not push daily entries, when there’s not enough time for them.

Daily entries can do more harm than good for individuals who tend to put a lot attention onto the smaller details. Day to day spending and income tends to be different. Even when a budget keeper will be on track to achieve their monthly goals, daily variations could contribute to unnecessary worries.

There’s precedent to this suggestion. The Internet is full of tales of investors which overfocus on daily fluctuations. This attention to one of the smallest details in investing, leads many to sell their positions early, or to stray from their chosen strategy. The actions performed out of the seemingly innocuous habit, can lead many to losses.

For budget keepers which choose to enter entries into budgets daily, there are life hacks that help to keep to this tactic:

  • Alarms and calendar reminders;
  • Attaching daily budget entries to another activity;
  • Pre-entering the numbers – if unexpected expenses are uncommon, entering the numbers the night before can help.

Small steps to big gains

Not all people want or have the will to regularly attend to their budget. Life gets in the way, and there are many new months and new Mondays that don’t create new beginnings.

There are small steps that help to create a routine out of budget keeping. They aren’t as time-consuming as daily entries. Yet, they create a routine of financial reflection. A routine that is necessary for building better habits.

budgeting habit building steps
Budgeting habit steps. Copyright: Money Bear Club.

Reviews of a budget help to edit it, and to add a new perspective. Monthly reviews of a budget are a small step towards continuous budget keeping. Nevertheless, their impact can be significant.

Monthly reviews are a powerful tool for budget keepers who want to develop a habit of budget keeping, but don’t yet have the time or the will to do it. Monthly reviews can be different for each individual. For some, it can be a look back at all of their entries. For others, a monthly review can be as uncomplicated as looking at bank statements, and setting new goals based on the spending of the previous month.

Accountability towards another person is a proven way of keeping on track for tasks and goals. For budget keeping, being accountable to a friend or a family member can help in making it a habit (the other person can remind about budget entries), placing more emotional weight on the importance of the habit, creating another barrier to quitting the habit.

Celebrating hard work can make it more likely that it will continue in the future. Even so, celebrations of successful budgeting are not particularly common, and could disrupt the formation of a budgeting habit.

However, tying in budgeting entries to personal celebrations can be a great way to create a cheerful association to the activity. Working on a budget before going out or some similar fun activity, should create an association between the “fun” and the “dull” activity.

The three small steps for easier budgeting work well not only on their own. Together, the steps create an action –  reward system for budgeting.

Extreme budgeting as a habit

How to do extreme budgeting discusses and analyses the best ways to go about extreme budgeting. Without a habit to choose the “extreme” route, many will find it hard to perform extreme budgeting.

Extreme budgeting, as a habit, sometimes doesn’t require habit building. This happens when it is done out of necessity. For other instances, creating a habit out of extreme budgeting requires certain conditions.

The first condition is a strong rationale for choosing extreme budgeting. Choosing extreme, rather than simple budgeting, requires a believable rationale. Especially, because of the high savings goal that comes with extreme budget keeping.

Foregoing spending to the extreme and directing a large part of savings into assets requires not only strong will. Without clear and credible reasons on why extreme budgeting is important to the budget keeper, sticking to this option will be difficult.

The second condition to creating a habit out of extreme budgeting is having spending lines that can’t be crossed.

One extreme can easily lead to another. After a month of careful budgeting, it can be easy to free the reins, and to overspend during the next one. Having certain lines that can’t be crossed (e.g. never spending more than X amount on Y area), will help to not break the habit of extreme budget keeping.

An extreme budgeting habit will be easier if it is done in smaller time periods. It is easier to cope with a goal of one month of extreme budgeting done twelve times, compared to a goal of a year of extreme budgeting.

Taking from the theory of habit building, every habit requires goal achievement to keep to it. In case of extreme budgeting, a long time period often separates the beginning and the end of the activity. As with separating time periods, separating a larger goal (save for a house) into smaller ones (save for furniture, decorations, etc.), can make extreme budgeting easier.

Technology for budget keeping

Using apps or software on specific devices helps many people to budget. It’s almost always more convenient than keeping a budget on paper, and allows for quick and easily customization and data extraction. Using apps or software also allows to take budgeting data with the budget keeper wherever he or she is — without the additional weight and space paper takes.

Despite the benefits technology brings, there is a drawback with the conventional view that using devices or software is the best way to keep a budget.

Committing to using an app for budgeting on a smartphone can easily lead to abandoning the habit of budgeting altogether. That’s because app abandonment after a download is common.

Strong motivation (financial, related to convenience) can exist to use an app for budgeting. However, because of the very high app abandonment rates, choosing this tool can easily lead to abandoning budgeting altogether.

20 for 80

The rule of “20% of work yields 80% of results” works really well for budgeting habit building. Knowing the stages of habit building, and applying the knowledge of it to budget keeping, should yield 80% of results.

It can be easy to abandon the habit of budget keeping. Nonetheless, just trying for it, is already a large step forward to better financial control of spending and income.

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