Whether you want to buy a house, pay down debt, or save enough money to live comfortably in retirement, it’s possible to reach your financial goals. The trick is to find what’s holding you back from taking action on those goals.
Financial self-sabotage can manifest in many ways, from resisting a budget to neglecting your savings account. When you’re planning your financial future, it’s important to understand the most common forms of self-sabotage and how to avoid them. Here are several tips to get you started.
1. Develop a Purposeful Budget
A budget gives you a picture of your financial situation. It lets you see how much you earn each month and how you spend or save your money. It also helps you with planning. By employing a budget, you can decide the smartest way to leverage your earnings.
Without a budget, there’s no easy way to see how your spending relates to your income. You might end up spending way more than you bring in each month, which is a fast way to accrue debt.
If you aren’t currently following a budget, you’re not alone. Many people self-sabotage by postponing this important responsibility. That said, it’s never too late to formulate a budget and take control of your finances.
Benefits of Budgeting
Creating a budget for yourself or your family offers a broad spectrum of benefits. One notable benefit: It can keep your spending in check. When you make a budget, you see what you need to spend money on, such as your mortgage or rent payment, utilities, and groceries, as well as what you’d like to spend money on, such as going out to restaurants or buying gadgets and toys.
With a budget, you have to make decisions about how you use your money, and that decision-making can help you set priorities and determine what’s essential.
Another significant benefit of budgeting is that it helps you avoid debt. If you have a credit card, it’s often easy to charge everything to that card without paying attention to how much you’re really spending. When you reach the end of the billing period, you might find that you’ve spent far more than you can pay back. With budgeting, you know exactly how much you can spend using your credit card, allowing you to keep the balance manageable.
Your budget can also help you set and work toward financial goals. If you’d like to save up enough for a down payment on a home, you can allocate a category of your budget toward that savings goal. You can also use your budget to determine how much you can comfortably set aside for retirement and the extra money you can allocate toward an emergency fund.
How to Make a Budget
Though there are multiple budgeting styles to use, the process of creating a budget is similar for each one. First, you need to figure out how much you earn each month. Next, you need to track your spending or otherwise calculate and categorize your expenses. You can use a budgeting worksheet to simplify the process and give you a clear idea of the types of spending categories you might consider.
After you’ve tracked your expenses and figured out your income, consider the purpose of the budget. Do you need to find ways to save more money each month? Are you trying to cut back on frivolous purchases so it’s easier to make ends meet? Ideally, the amount you earn each month will be more than your expenses. If it’s not, you might have to think of items to cut from the budget or ways to spend less on essentials.
Once you’ve covered those steps, put your budget into action. Keep track of what you spend money on each month and record it, whether in a notebook, a spreadsheet, or budgeting software. Take a few minutes to review your budget at the end of the month so you always have a clear idea of your financial situation.
2. Make Sure Your Budget Is Realistic
When you make a budget for the first time, it can be tempting to remove everything but the bare necessities. Though this may seem like the fastest route to your financial goals, it’s often counterintuitive.
When you restrict yourself too much, you may end up tossing your budget out, frustrated with the high standards you’ve set for yourself. In this way, an impossible budget is a form of financial self-sabotage.
There are a few signs that a budget isn’t realistic:
- There’s no flexibility: When you want to get your spending under control, it’s natural to go to extremes. You might cut out everything that isn’t absolutely essential, such as trips to the local coffee shop, lunches out, happy hours after work, and clothing you don’t absolutely need. But going too far can cause you to feel confined and trapped. People who feel trapped often respond by going too far in the opposite direction. By making drastic cuts to your spending, you might end up spending more. Instead, make room for a few small luxuries in your budget each month.
- It doesn’t include irregular expenses: In the course of budgeting, it’s common to forget quarterly or other irregular expenses. Things might be going smoothly with your budget for a few months, until suddenly, your car insurance payment is due, or you need to bring your pet to the vet for their annual check-up. When tracking expenses, be sure to track every expense. You can divide irregular expenses up and set aside a particular amount each month so you have enough to afford them when the payment due date rolls around. It’s safe to divide the cost of a quarterly expense by three and include that amount in your monthly budget.
- It overestimates your income: Knowing how much you really bring home each month is essential for creating a successful budget. Use the numbers you have, rather than the numbers you want to have, when calculating what you make. If you freelance or have an inconsistent income stream, track it for several months, then use the lowest amount. That way, you’ll have a bit of cushioning in your budget.
- It uses inaccurate spending information: Tracking your spending before you put together your budget is essential, as it gives you a realistic idea of what you’re spending your money on. If you try to wing this part of your budget, you may have difficulty sticking with it.
- It’s out of date: Your financial life changes over time. If you’re using a budget you haven’t updated recently, you might find that it doesn’t make sense for your current situation or that it doesn’t line up with your needs and goals. It’s a good idea to revisit your budget every quarter or so to make sure that it’s doing what you need it to and that the information matches your income and current expenses.
3. Set Financial Goals for Yourself
Another common way that people self-sabotage is by failing to set financial goals. It can be difficult to reach important milestones if you don’t have a plan for getting there. Whether you’re set on homeownership or supporting your kids through college, financial goals serve as little checkpoints along the way.
If you don’t have any financial goals, it’s time to set some. The goals can be big or small. What matters most is that they’re something you can make visible progress toward and track. Ideally, your financial goals will be SMART ones:
Here’s an example of what a SMART financial goal might look like:
- Goal: Save $25,000 over the next 10 years for a 10% down payment on a $250,000 home.
- Specific: You know exactly what you’re working toward ($25,000 down payment) and why you’re doing it (afford a down payment on a home).
- Measurable: You want to achieve the goal within 10 years. Since you know the amount to save ($25,000), you can easily calculate how much to set aside every month to reach the goal on time ($416).
- Achievable: Based on your income and current financial obligations, saving $416 per month might be something you can easily do.
- Relevant: If you want to become a homeowner, saving for a down payment is part of the process.
- Time-bound: You’ve given yourself a timeframe for saving (10 years).
If you aren’t sure what type of goal to set, here are a few ideas:
- Establish an emergency fund: An emergency fund provides protection if you lose a source of income or encounter a surprise expense. If you decide to start saving for a rainy day, calculate how much you want to have in the fund, how long you want to save, and how much you need to set aside each month to reach your goal. It can be helpful to start small, such as saving $1,000. Then you can continue building your savings from there.
- Save for retirement: Depending on your age, saving for retirement can be a long-term goal. To start saving, calculate how much you might need in retirement based on your income and lifestyle preferences. Then, figure out how many years you have until you retire. Using those numbers, you can calculate how much you need to set aside to stay on track with the goal.
- Make and follow a budget: If you aren’t already following a budget, putting one together can be a worthwhile goal.
- Save for your child’s college education: Similar to saving for retirement, saving for a child’s college tuition can be a long-term goal. Decide how much you want to save, determine how long you have to save, then use those numbers to figure out how much to save every month.
- Cut your monthly spending by a certain amount: Let’s say you spend $500 per month on miscellaneous stuff, such as meals out, coffee, and non-essential household items. You’d like to spend less on things you don’t actually need, so you decide to cut this spending by 20% ($100). To stay on track, record each non-essential purchase you make. To avoid making impulse buys, make yourself wait at least 24 hours after seeing something you don’t need and actually making the purchase. If you force yourself to wait, you’re likely going to skip buying the item entirely.
- Pay off a credit card: If you have credit card debt, one of your goals might be to pay it off. How you go about reaching this goal depends on the number of cards you have and the amount you owe. You might focus on paying off the largest debt first or the card with the highest interest rate. Regardless, choose a target “debt-free” day and determine how much you should pay toward your debt to allow you to reach that goal.
4. Don’t Compare Yourself to Others
You thought you were happy with your sedan, but your best friend recently bought a snazzy sports car, and suddenly, you find yourself wanting one, too. Or, on a recent shopping trip with friends, you only planned on buying a new pair of shoes but found yourself leaving the store with new jeans, shirts, and accessories as well.
Human psychology tends to make people want what their friends have. The need to “keep up with the Joneses” is rooted in a desire to demonstrate wealth and status. The more you have, the more powerful and important you are, or so the thinking goes.
The trouble with this mentality is that it can really throw your finances for a loop. You may not have the budget for an expensive sports car, but you find yourself taking on the high monthly payments anyway. Or, you might make so many purchases that you come close to the limit on your credit card. The need to show off your supposed wealth can keep you from actually building it.
What can you do to turn off the part of your brain that makes you want to buy things to compete with friends? There are a few strategies you can try:
- Remember things aren’t always what they seem: Your neighbor might have a beautiful lawn, your friend might drive a better car than you, and your sibling might always wear the best clothes. If you start to feel jealous of them or feel the need to live someone else’s lifestyle, remember that material possessions can often mask reality. Your friend with the nice car might be in debt, and your neighbor with the beautiful lawn might be falling behind on their mortgage. Just because someone seems to be well-off doesn’t mean they are. Instead of focusing on outward indicators of financial security, focus on what you can do to make yourself more financially secure.
- Focus on experiences over possessions: Superficial expressions of wealth aren’t always the best way to use your money. Try to focus on experiences that increase your happiness and well-being. Sometimes, the simplest things in life, like stopping to admire someone’s flower garden or taking a walk in the park, can be more rewarding than the objects you’re told will make you happy.
- Remind yourself of your goals: When you feel pressure to buy something because everyone else is, take a few minutes to remind yourself of your financial goals. Reflecting on what you’re working toward can help remind you that you don’t need the newest gadget or latest iteration of smartphone.
- Focus on things to be grateful for: Give yourself reminders of the things in your life that you have to be thankful for. It can keep you from feeling pressure to consume and compete with your neighbors. If you feel jealous when your neighbor pulls up in a shiny new car, remember that you have a vehicle that gets you where you need to go. Reflecting on what you have can increase your contentment and help you avoid overspending.
5. Start Setting Aside Money
It’s a good idea to have some money tucked aside for a rainy day. After all, there’s no way to predict the future. Having an emergency fund will give you some financial protection if your car breaks down, your furnace stops working, or you lose your job.
If you’ve struggled to save, you aren’t alone. In the U.S., four out of 10 adults would have difficulty coming up with the money to pay for an unexpected expense, like a problem with their car or an appliance that needed repair.
Along with saving for a rainy day or emergency, it’s important to save for retirement. The sooner you start saving, the more time your money will have to grow, allowing you to live comfortably after you stop working. Even if you haven’t started saving yet, it’s not too late to begin.
How to Start Saving
If you’ve tried saving money in the past without success, reflect on why you had so much difficulty. It could be that you didn’t have a concrete goal or plan for your money, or that you were flying blind, without a budget. If either one is the case, focus on making a budget and developing a specific savings goal before you start setting money aside.
Once you have a goal and can see how much you can comfortably save each month, think about what you’ll do with the money. If you want to save for retirement, it’s a good idea to open a retirement account like a 401(k) through your employer. An individual retirement account is another option.
To keep yourself on track, automate your monthly savings. Have a set amount transferred from your checking account to the appropriate savings account on payday. You can think of this method as paying yourself first. After you’ve reserved your savings, you’ll be able to spend the remaining money as you see fit.
Depending on the size of your savings goal, you might reach it pretty quickly. When you do, celebrate! Then, start thinking of what you’ll do next. For example, if you saved up $1,000 in your emergency fund, you may want to increase the amount to three months’ worth of expenses.
PSECU is Here to Help You Reach Your Financial Goals
If you’re feeling overwhelmed by your financial situation, remember that you don’t have to navigate it on your own.
Our WalletWorks page has financial tips and advice to help you make a budget, create a savings plan, and get on track with your money.