Why You May Need to Go On a Financial Diet

June 3, 2015

Have you ever looked down at your waistline and thought, " Wow, I've really got to get my eating habits under control and lose some weight?" That feeling of helplessness, spinning out of control, and not going in a good direction can happen with your financial health too.

So what's the solution if your financial habits are as bad as your eating habits? You may need to consider a financial diet -- otherwise known as a budget.

Why do you need a budget?

A budget provides a path to achieve and maintain your financial goals. Just as the diet targets your calorie intake to reduce and then maintain your weight, a budget targets wasteful spending and then helps maintain a spending rate that you are comfortable with. In addition, it helps avoid spontaneous consumption. In the financial world this is usually accomplished by the reckless use of credit cards -- the equivalent of junk food for your budget.

Accountability and building a support system is important for both dieting and creating a budget. A budget should include your household, allowing everyone to understand where the money comes from and where it goes.

Having a budget planned also allows everyone to see where the spending is occurring by category and by individual. This quantifies the spending, allocates it where it is needed, and provides a substantive basis for the discussion of where the money gets spent. Think of it as saying, “We only have one bag of cookies so let’s talk about how many everyone gets and when we are going to eat them.” It's better that way then going to the cupboard and finding all the cookies gone.

The budget, just like your diet, provides a way to measure and control your spending. You know how to count calories and what foods you should be eating when you are on a diet. The budget provides the same guideline for your spending.

 What are the advantages of having a budget?

The most successful diet plans are the ones that feature foods you like and are easy to follow. After a few days you start to see favorable results and you feel empowered that you are getting control of your life and starting to see good results. It’s the same for your budget plan. The best budget will still allow you to have the things you really want and will be easy to follow. Getting control of your spending will give you a sense of empowerment -- your decisions will be driven by choice, rather than habit.

How many times have you been stressed over finances? How many times have you been in arguments over spending? Knowing where the money comes from and where it goes can remove a dark cloud from your mind, allowing you to reframe your thoughts away from what you cannot afford to what you can afford. The certainty of knowing your spending plan can resolve a lot of worry and the written down and agreed to budget will also reduce the arguments because financial discussions can be based on the facts.

Just like your diet reveals how many thoughtless calories you consume in a day, a budget shows where money is being wasted. Categorizing the spending shows where the money is going as a percentage of income. If your cable bill is as big as your grocery bill and you are never home to watch it, then maybe cutting the cable makes a lot of sense.

Looking at the bigger picture

Having a budget can help you focus on difficult financial issues. Without a serious look at our financial plans and spending habits, we tend to avoid examining some very difficult issues like paying off student loans or establishing a retirement plan. Just think about all the bad stuff that you would eat if you never thought about fats, cholesterol, or sugars in your diet. Having a budget allows you to deal with longer term issues and find resolutions by making small changes in your daily spending habits.

Finally, having a budget can help you determine if your plans are feasible and put a timeline on your goals. It’s just like wanting to lose ten pounds -- it can’t be done in one day, but with a good diet plan you can loose a pound a day. It’s not easy and it doesn’t happen overnight, but with a budget you can control your spending, get a sense of empowerment over your life, and plan out a future that you will be happy with.