4 Steps for Creating A Budget That Maximizes Your Happiness

by GoGirlFinance 

 

While the word budget makes many people cringe, budgets are just a tool we have available to consciously allocate our spending in ways that make us the happiest. Doesn’t that sound much better? Here’s how to do it in 4 easy steps.

Understand your “Pie”

 

At any given point in time, we have a certain amount of money available for spending. I call it our “pie.” Yes, that amount can increase through a promotion or raise, passive income or an inheritance, but for budgeting purposes, at this point in time, our pie is set.

The first step in making a budget is to figure out what you have available to allocate. What is your annual income? Do you earn any additional money from other sources? The total is what we have available to allocate to maximize our happiness. While we can reasonably expect that our income will be at a certain level, it’s never set in stone. Make a realistic forecast and adjust as needed. Protect yourself with a rainy day fund. While this doesn’t seem like the most fun use of your hard earned money, the piece of mind and financial independence might make you happier than you’d expect.

Ideally, as our pie increases we don’t lever up our lifestyle to meet it. For example, just because you receive a promotion at work doesn’t mean you have to live in a more expensive apartment or get a more expensive gym membership. Make a conscious choice to use the increase for your most important financial goals.

Figure out What Makes You Happy (and what doesn’t)

 

Sometimes we spend on things that don’t actually make us happy just because we think we should. How much of what you’re spending is for you and your goals? Do you actually hate shopping but feel pressure to keep up with the latest trends? Are you spending on fancy cable channels that you wish you watched less of? What are you spending on that truly bring you joy?

Here is your chance to reflect on your spending over the last year. What brought you happiness and what could you do without? Watching your student loan balance go down might bring you great joy and satisfaction. Saving for a down payment on an apartment might make you feel financially secure.

Rank or prioritize your current spending. What’s really important, somewhat important or not important at all? There might be things that would make you very happy that you’re currently not spending on. Add them to the list! Be honest with yourself. This is your opportunity to decide what’s important.

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