How To Create a Budget That Makes You Happy

The word budget often brings to mind feelings of restriction, lack and scarcity as we imagine ourselves on a starvation money diet. We may feel that when on a budget, we don’t let ourselves buy and do certain things and can miss out on some great life opportunities. We ask ourselves questions like, “would I have to miss that fun trip with my friends?” or “will I have to wear the same old shoes again this season?” It doesn’t have to be this way!

A New Way of Looking at Things

The purpose of a budget isn’t to restrict us at all – it’s to empower us. If we just spend blindly and impulsively on whatever comes our way, we lose the power to spend on things that actually matter. How will you spend the money you have in order to maximize your happiness? I call this way of budgeting a happiness allocation plan.

Your Happiness Allocation

At the end of the day, we have a set amount of money we can spend at any given time. It can increase with a promotion or unexpectedly with an inheritance but for our allocation purposes, we must do our best to realistically project what our income will be for the year. From there we can take a closer look at our spending.

Are there things you are spending on that don’t actually improve your life? Are there areas you could be spending more? To clarify, just because something makes you happy in the moment, doesn’t mean it makes you truly happy. You might get a rush from buying a new purse but if you end up feeling terribly guilty after the fact, these types of purchases are probably not making you happy at all.

How Do I Choose?

If you’re anything like us, you can identify many things that make you happy. Financial security is probably one of them. Let’s say you’re trying to build up an emergency fund, but that will mean cutting spending on something else that makes you happy. How do you choose?

If you love going out to dinner with friends because you enjoy spending time with them, you can choose less expensive restaurants or organize a potluck in order to save money to allocate elsewhere. Second, it’s all about trade-offs. That’s the danger of spending without a happiness allocation. Every purchase decision has an opportunity cost. When you use your money for one thing, you can’t use that money for something else. Understanding that concept is hugely important for figuring out how to use your money to maximize your happiness!

Throw out your old budget and start from scratch with a happiness allocation. Figure out how much you have available to allocate, and what your essential expenses are (i.e. rent, student loans, building an emergency fund). Then, decide what spending makes you happy and then assign target numbers to each area. Make sure to adjust as you go and enjoy the process. You can feel proud knowing you are consciously spending your money in ways that will lead to financial security and make you the happiest.