When It Comes to Budgeting, Keep It Simple...Saver

We’ve all been through analysis paralysis.  With budgeting, we can sometimes experience that same concept.  Ever felt that way with a calorie tracking diet?  Budgeting can feel similar.  That’s where the beauty of simplicity comes in.

Shannon Marie, with another great post for the YNAB Blog that I will probably have to come back to time and again myself:

One of the biggest benefits of budgeting is peace of mind. You get paid, you give every dollar a job, and then you’re basically set. Sure, you might need to roll with the punches (life happens), but you’ve done the heavy lifting—follow your budget and, with time, you’ll win financially. No guesswork.

This is a huge perk when you consider that, in a given day, we only have so much cognitive energy. And when you think of all the things we fill our lives with—jobs, friends, kids, neighbors, hobbies, and so on—it’s easy to see how precious that energy is.

There’s a study, conducted by Stanford psychologists Sheena Iyengar and Mark Lepper, that describes decision fatigue, which is the result of overstimulation that exhausts those precious energy reserves. In the study, they presented shoppers at a grocery store with a display of 24 varieties of jam. Shoppers who tasted a sample were offered a coupon for $1 off any jam.

They returned and repeated the experiment but, the second time, they only offered six varieties of jam. More shoppers approached the 24-variety display, but when they tallied the purchases, they discovered that the smaller, 6-variety display actually sold ten times more jam. The conclusion? When given too many choices of jam, shoppers chose not to choose.

So, how does this relate to your budget? A lot of us tend to over-complicate things, especially our finances. We think that the more detailed or complex we make things, the better our results will be. But, you don’t want to do that with your money. If you really want a lasting change—one that you won’t ditch at the first sign of confusion (ahem, decision fatigue)—it’s much, much better to keep it simple.

An overly complicated budget will leave you scratching your head and wondering things like:

  • What category does this money come from?
  • Should I use this account, this account, this account or that account?
  • What credit card should I use to pay at the grocery store—A, B, C or D?
  • How do I maximize my points?

At best, you’re left managing the churn of unnecessary questions, making your budget more difficult than it needs to be. At worst? Like the shoppers faced with 24 flavors of jam, you give up! That’s why it’s a good idea to pare your budget down to just the essentials. What categories, goals and accounts do you really need?

If you simply commit to consistently applying The Four Rules, you’ll really be able to dial things in. Establish a regular budget meeting to apply the rules and review your budget, and you won’t have to worry about things like, “Do I pay this bill with this paycheck, or put it off until next paycheck? Should I use the credit card? Should I even buy this?”

… because you’ll have already decided! Make your budget decisions in bulk during the budget meeting, and you’ll be able to coast the rest of the week or month, acting out the choices you’ve already made. The benefits are:

  • In your budget meeting, you’ll have your entire financial picture in front of you (which means you’ll make much better choices!),
  • And, you won’t fall victim to impulse decisions that aren’t in the best interest of your big, hairy, audacious money goals (which means you’ll make much better choices!)

And, that’s how you beat decision fatigue when it comes to your money.

Great stuff.  If you have yet to give YNAB a try, get a free month to see what you think!