I like this happy approach for home budgeting!
Thanks WSJ for this flip-side suggestion:
“For most people the “B-Word” (budgeting) conjures up feelings of deprivation and self-denial. As such, when it comes to deciding how to allocate your hard-earned cash, I far prefer a concept I call “joy-based spending” to traditional budgeting.
Here’s how it works. Instead of telling yourself all the things you shouldn’t spend money on, you focus on maximizing the amount of joy you get out of each dollar you do spend. Rather than allowing spending restraints to drain your will power and sap your serenity, you focus on deliberately increasing your happiness through targeted, deliberate spending.
To try this approach, commit to jotting down everything on which you spend money for a set time period (a week, two weeks, a month–whatever you can stomach). At the end of the time period, pull out a highlighter and mark any spending that brought you extreme, authentic joy. Now take a look at what’s left over. That’s where you can start cutting back on your spending, without eliminating any joy from your life.
You may find you are paying for a mortgage on a house you hate to clean or that now feels too big. Perhaps you discover charges for an expensive dinner with people who you don’t even like to be around. I’ve yet to meet anyone who, after completing this exercise, couldn’t find at least one thing to cut back on.
A related tool involves some simple math. Take your annual after-tax income and divide it by 2,000 hours (which supposes you work 40 hours a week for 50 weeks a year). Say your after-tax household take-home income is $80,000 a year. That means your “hourly” wage is $40. Now, if you see a $400 item you absolutely have to have, you now know that’s the equivalent of 10 hours of work. Is it really worth it? Will it make you that happy?
Maybe yes, and maybe no. But now you have a highly personal yardstick–your precious time and energy–against which to measure that purchase. For more about this concept, read the classic book by Joe Dominguez and Vicki Robin, “Your Money or Your Life.”
Last but not least, I recommend combining this mind-set of joy-based spending with a concept I first came across in Sen. Elizabeth Warren’s book, “All Your Worth,” which she wrote with her daughter, Amelia. Called a balanced-spending formula, this rule of thumb says to target 50% of your take-home pay to needs, 30% to wants and 20% to savings. The point of this guideline is to illustrate that your “income pie” can only ever equal 100. Should you choose to spend more in one area, there is by definition less to spend elsewhere.
As an added bonus, I’ve observed that people who have a very clear understanding of their household cash flows–by which I mean an intimate knowledge of what exactly is coming in and what is going out–often achieve greater levels of financial calm and confidence.
Increasingly I’m coming to believe that knowing your financial inflows and outflows may be one of the most powerful relievers of financial stress. Across a wide range of income spectrums, I’ve encountered individuals who have no idea what they are really spending and who report that being mindful, conscious and deliberate about changing that behavior has made them feel much more in control of their financial lives.
Bottom line, using the 50/30/20 rule in conjunction with a mindset of joy-based spending can put a positive twist on the “B-word,” resulting in increased happiness and reduced long-term financial stress.”