The Best Way to Budget Your Money | 4 Things Every Budget Should Have

over the past five years of making videos on this channel i've gone over many different ways that people have budgeted and spent their money we've covered the various budgeting styles from comprehensive budgets such as the zero-based budget popularized by dave ramsey to percentage-based budgets like elizabeth warren's 50 30 20 budget and even the more niche budgeting styles like the values based 5 minute and cash only budgets we've also covered various sources of regretful spending such as the psychological quirks that marketing often uses to get us to spend money where we otherwise may not have and of course other forms of regretful spending like emotional spending and catch-up spending or spending related to paying down avoidable debts that we nevertheless accrued due to past financial mistakes and don't get me wrong all of that stuff is extremely helpful and good things to be aware of learning what not to do as you go through your financial life is helpful but there's also the other side of that coin it's important to know what you should be doing and what opportunities you might encounter throughout your financial journey that you would want to be taking advantage of to this point we've never really gone through that on this channel at least not explicitly so that's what we're going to be doing today let's talk about the four categories that every budgeter should consider when creating their budget and why they are so important to helping you utilize your money as effectively and sustainably as possible but before we get going be sure to like this video if you haven't already as it really does help out the channel a lot and subscribe with notifications on for more money related videos like this one every single week and if you want to further support this channel you can check out some of the links i've left in the description below which includes a link to my patreon page this is the best way to show your support for this channel and in addition to that you can also get early access to new videos and exclusive content such as spreadsheets based off the ideas we discuss in these videos spreadsheets will allow you to play with your own numbers and see how big of a difference some of the ideas we discuss can make for your own personal financial situation the first category that every budgeter should take into consideration is to incorporate wellsprings of enjoyment into your budget which probably requires some explanation because wellsprings of enjoyment sounds pretty pie in the sky on its face so here's what i'm getting at with this term a wellspring of enjoyment in this context is simply something that you spend money on that leads to other enjoyable outcomes and or experiences depending on the person this could come in any number of forms from a cup of coffee with a friend which generates an enjoyable social interaction to buying a new bike that allows you to ride the trails near where you live but regardless of what the purchase is there are two points to keep in mind here the first is reframing and the second is to spend efficiently with this category in particular we need to make sure that we are framing our spending properly by this i mean we need to understand what we're actually trying to buy with the money we're spending for example buying a car is not just about having a car every 16 year old knows this but functionally what a car does is widen your radius of reachable experiences in other words you become more mobile when you have a car than when you don't have a car and that opens up to work for you in terms of what you can do on any given day instead of being restricted to the local park you could go on a road trip anytime and to anywhere you want at least in theory you could take some friends out to bowling or to a movie or a show in the big city you get the point the possibilities are greater once you become more mobile and that's the frame of mind you want to have with purchases that fall under this heading it's less about what the purchase actually is and more enables you to do and how that newfound ability will improve your life this is of particular importance to those who would otherwise be pretty stingy with their spending because while there's absolutely nothing wrong with saving money whatsoever as a matter of fact it's crucial to long-term financial success the desire to save can sometimes be taken to an extreme to the point where you start depriving yourself of things and experiences that would have led to a more enjoyable life without actually jeopardizing your financial future simply in the name of not wanting to spend money another thing to note is that just like saving can be taken to an unhealthy extreme so can spending while we are trying to reframe purchases under this heading to focus more on how they will improve our lives we also want to make sure we're being efficient with these purchases coming back to the car example a lamborghini is just as capable of enabling you to reach new potential experiences as a toyota corolla it's just that one is a lot more expensive than the other this is why reframing the purchasing decision to focus on what you're actually trying to get with the money is so crucial because it enables you to then focus on what the most cost efficient way of getting that thing is which helps to ensure that you don't later suffer buyer's remorse while simultaneously leaving as much money as possible in your pocket for future endeavors a tip for making the most out of this category is to try and vary the things and experiences that you purchase as well as the timing of those purchases the reason behind this is there is a psychological phenomenon that all humans are prone to known as hedonic adaptation i've covered this idea in other videos so i'll keep the explanation brief here but basically the idea behind hedonic adaptation is that we as humans have a tendency to quickly return to a relatively stable level of happiness even after we experience some major

positive or negative life events a couple examples of this are people who suddenly win the lottery and those who get a big promotion or raise at work sure initially these things are pretty awesome however life goes on you get used to your new role at work the honeymoon phase ends and things just become routine they go back to normal even if it is a new normal it may not be the happiest thought but there is a lot of truth to it so it's important that we use that insight to our advantage one way to do that is to try and ensure that our purchases particularly those under this heading never feel routine by adding some novelty and variety to the things that we purchase as well as how frequently we purchase them along those same lines it may also help to focus on making small regular purchases instead of large infrequent ones spending a little money at regular though not static intervals for things like trying different items at your favorite local restaurant could be a better use of your money than doing nothing for a year or more as you save up enough money for a week-long trip to disneyland or some other more expensive experience both experiences are novel at least the first time around but one approach gives you a regular hit of dopamine while adding a bit of spice to your lifestyle whereas the other leads you to living a much more routine lifestyle for a long period of time until that eventual massive one-time payoff arrives there's no arguing that the one-time major purchase of disneyland would probably hit the highest high of the two but it also comes with a potentially much lower baseline day-to-day experience that we become adapted to and given that this day-to-day experience is where most of our life is lived that's a pretty noteworthy drawback granted if you are able to find ways to brighten up your day-to-day life while saving for disneyland that's absolutely great and for the record it might be a good challenge for yourself because it forces you to find ways to enjoyably live life without spending much if any cash but if not you're probably better off sticking with those smaller but more frequent pleasure purchases from this portion of your budget remember the goal here is to find a way to stave off the mundane blandness of a hedonically adapted lifestyle at least as best as we can because that kind of lifestyle just doesn't produce as much joy per dollar spent as one that is efficiently finding ways to add a reasonable amount of enjoyable novelty to the day-to-day grind another tip would be to try and find ways to build a sense of anticipation into your financial life there's two reasons for this first building positive anticipation for something good you have coming up can sometimes wind up being as good if not even better than the actual thing itself think about the anticipation for christmas when you were growing up sure the opening of presents on christmas morning was an exhilarating experience but that experience only lasted the one day if you're going to spend money on something fun either way the real opportunity cost to spending it now as opposed to later is the enjoyment relating to the anticipation that could have been built depending on the person and the purchase in question that anticipation could have lasted for several days maybe even more and ended up being more enjoyable and aggregate than the thing itself that possibility is something we don't want to just ignore when trying to best budget and spend our money second it helps us to avoid creating future negative experiences due to debts that forcibly delay gratification because let's face it choosing to put something off for a little bit is a lot more palatable than putting something off for a while because we have no other choice a third tip is to focus on the incomparables or the things and experiences that are in some way unique as they say comparison is the thief of joy and being a social species humans tend to compare ourselves to one another quite a lot when the things or experiences that we buy don't stack up to those of our peers we tend to experience something known as relative deprivation another one of our beautifully tragically flawed psychological quirks that refers to the feelings associated with lacking something be it resources like money or more intangible things like prestige and social acceptance that others have or that we have become accustomed to basically we want to limit the feelings that come from these unhealthy comparisons wherever possible and one way to do that is to put more of our money towards things that can't be directly compared with others because something is unique about them the second category that every budgeter should take into consideration is giving specifically strategic giving this could come in the form of contributing to a charity whose cause you support and believe in or giving to friends and family in need both of which can be very enjoyable uses of money in addition to helping out those who receive it and i should note that these things don't have to be big grand gestures it could be as simple as just taking a friend out for lunch and talking about their week or planning an upcoming trip for the two of you in fact that would probably be a good example of strategic giving as not only are you doing something nice for a friend but you're also potentially setting yourself up for an enjoyable social interaction one that may itself set up a future enjoyable experience in the case of planning the trip so essentially what you're doing here is giving while simultaneously incorporating the ideas of the previous category that's an efficient use of money the third category that every budgeter should take into consideration is health and i don't think this one really requires much of an explanation spending money on making sure your health is up to snuff is important whether that be your physical health

your mental health your emotional health or whatever type of health we're talking about because if you're healthy you can much more easily enjoy life to its fullest if you're not well let's just say the barriers to living your best life are significantly higher the fourth category that every budgeter should take into consideration is freedom this could include things like spending money to free up your time spending money in ways that give you greater freedom of choice and so on i include this category because people are often happiest when we feel like we have some level of personal autonomy when we feel we have control over our time our choices and by extension our lives things just tend to feel better so it's definitely not something that we want to ignore when setting up our budgets one somewhat counter-intuitive tip for making the most out of this aspect of our budgets is to focus on removing negatives from our life before we start trying to stack on more positives the reason for this is simple energy just like time is a finite resource and at least in my experience few things are more damaging to our ability to make the most of our time and our choices than not having the energy to do so and few things drain our mental emotional and physical energy quicker than the silly stuff that we need to put up with every day whether that be a bad boss a disrespectful co-worker or customer or just a bunch of red tape it can all get very draining and difficult to recover from quickly so if we can use our budget to somehow limit or maybe even eliminate some of these negative aspects of our lives we will have more energy and mental clarity to make the most of our time choices and opportunities similar to the other categories this could also come in many forms from simply taking the financial hit to avoid something that you don't enjoy doing or setting up your finances and lifestyle in such a way that the thing you don't enjoy simply doesn't matter anymore for example pursuing financial independence and or becoming your own boss so that you don't have to deal with a bad one ever again so those are four broad categories that every budgeter should take into consideration when planning out their spending however what all these categories point to is something that's probably even more important but not mentioned arguably the biggest key to getting the most out of your spending is to spend money intentionally to spend with purpose regardless of whether you're spending money on specific experiences or your time freedom or your friends or charity or whatever it should all be done with a clear purpose in mind and if you take nothing else away from this video let it be that if you're going to spend money make sure you can identify the point of that purchase but that'll do it for me today once again if you enjoyed this video be sure to smash that like button if you haven't already subscribe and hit that bell next to my name so you'll be notified of all my future uploads i generally upload every single monday and if you have a friend that would be interested in this kind of content be sure to share it with them let's really get this information out there and start our own financial revolution