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.
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.
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.
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.
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:
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:
If you aren’t sure what type of goal to set, here are a few ideas:
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:
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.
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.
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.