Budget BEFORE You Get Your First Paycheck

I will fully admit that effective budgeting is one of the most challenging things we do with our Members. It often takes the better part of a year to find a budgeting approach that fits the person and doesn’t feel too constraining. It involves a lot of trial and error, and there are no shortcuts.

However, I’d like to share with you one of the more powerful tricks in our arsenal – budgeting BEFORE you get the money. Our brains are generally not a supportive partner when it comes to budgeting – apparently hunter-gathers wanted to take what they could get, when they could get it. Our brains get a lot more upset about budgeting once we have the money in hand than if we earmarked it beforehand. I know this seems rather silly, but trust me – we’ve seen it time and again with our Members.

If you go from a period of relatively low income (read: in school) to a period of high income (read: any income), your brain goes nuts (the hunter-gather equivalent of stumbling across a freshly killed buffalo).  The vast majority of people will spend ALL of their income – sometimes a bit more, sometimes a bit less. You are probably thinking to yourself that this won’t happen to you, but statistically it will. And it creeps up on you – you don’t even realize it.  Purchases just seem to make sense, and are ‘needed.’ Advertising, ‘keeping up with the Jones,’ Target aisles, and instant gratification all contribute to the urge to spend everything. Fundamentally though, it is all made more probable by the hardwiring in our brains.

So, I urge you to make a budget before you get the money.  At Community Ladders, we go through the same process with our Members before they get a raise or a bonus – the logic is the same.

There are a lot of different budgeting sites and software out there. What works varies markedly from person to person. We often use Mint.com with our members. It’s not perfect, but it has a lot of features we like. While we haven’t tried these, here are some free software ideas (here and here) and some dedicated budgeting websites (here and here).

Just remember that budgeting is not always easy, and it goes against our instincts. Community Ladders is designed to be an external partner that helps keep you accountable to your goals. If you’re not a Member, we urge you to enlist a trusted partner to help keep you accountable and on track.

This blog entry is part of our June newsletter offering advice to recent graduates. 

Bill Varettoni is a financial planner and the founder of Community Ladders.