Psychology of budgeting: How to tap into the rewards

No matter what struggles people face when they seek financial advice, experts and advisors often suggest one tried-and-true solution.

• Drowning in credit card debt? Make a budget.
• Preparing for a baby? Make a budget.
• Worried you aren't saving enough for retirement? Make a budget.

Budgeting is the single most effective tool you have to set yourself up for financial success. Knowing how much money you bring in and planning how you want to spend it is empowering. It lets you take control of your money so your money doesn't control you.

We all have plenty of reasons for shirking the budgeting habit. Some of us think it takes all the fun out of the otherwise enjoyable activity of spending money. Others are afraid of what their budget might reveal. And some feel like they don't need one or put it off because they don't where to start.

These reasons make sense, says Lauren Atkinson, a North Carolina-based licensed clinical social worker. Atkinson specializes in cognitive behavioral therapy, an approach that helps people challenge negative thoughts like these.

"Without even realizing it, we may think of budgeting as a lot of work, and we may not understand the payoff," she says. "The fact is, budgeting is very rewarding."

The mindset behind budgeting

Ready to get in on the rewards of budgeting? Atkinson offers the following insights behind the psychology of budgeting — and tips for how to master your own mindset.

Do what you want to do.

The great thing about a budget is that it gives you license to spend money on the things that matter to you. It can even help you figure out what those things are.

To explain, let's back up: Some people find it helpful, before they ever sit down to make a formal budget, to spend a month or two tracking their expenses. There are lots of ways you can do it. If you're a pencil-and-paper kind of person, you could carry around a little pad and jot down a note each time you make a purchase.

If you prefer the digital route, USAA's online budget tool automatically categorizes each transaction into buckets like "eating out" and "groceries."

Whatever method you pick, the idea is to be aware of your own habits and preferences. Sure, you're aware that you swing by Starbucks on your way to work each morning. But you might not realize you're spending more than $100 a month on lattes.

Once you know, you can decide if that's what you want to spend your money on. If the answer is yes, then you can budget $100 per month for coffee. If the answer is no, then you can decide what you'd rather spend that money on.

"Awareness has to happen before anything else," Atkinson says. "You have to be aware of what you want to change. Sometimes, that awareness gives people a huge jump-start. If you're not paying attention to what you're spending money on, being aware could elicit automatic change without even trying."

Ask yourself what motivates you.

In the grand scheme of things, consider what compels you to go to work each day. Do you want to pay your bills? Do you want to fund your children's college education? Do you want to travel the world when you retire?

"Think about how those things make you feel," Atkinson says. Maybe you feel a sense of security because you're able to pay your mortgage each month. Maybe you feel proud that you can help your daughter pursue her dream of becoming a biologist. Maybe you feel excited about taking a European river cruise. When you make your budget, keep those things in mind.

"The awareness of what budgeting means to you creates motivation," she explains. "It helps you create a positive connection between your thoughts and your behavior."

Build a habit.

Imagine that your house is a mess. It bothers you because you want to live in a clean, organized space. Plus, you also want to be the kind of person who's able to keep your space clean and organized.

If you're like most people who feel overwhelmed and don't know where to start, your house stays a mess.

"But if you change your goal from cleaning your entire house to cleaning your kitchen sink, you've identified something you can easily accomplish," Atkinson says. "You enter into this positive feedback loop. You feel good, so you want to do a little more."

That's the trick when it comes to budgeting too. Make your goals specific and attainable. Maybe you decide you'll make coffee at home some days, but you'll still treat yourself to Starbucks on Mondays and Fridays. After a month, you've saved $50 without a big sacrifice.

"When you see it wasn't so bad and you're actually getting something out of it, you'll keep it up," she says. Before you know it, you have a series of small wins that turn into a habit, which leads to even bigger wins.

Know your nature.

Atkinson has a theory about people who don't keep a budget, and she has some good news for those people.

"We have perceptions about so many things, like budgeting being a lot of work, that are shaped by our childhood experiences and messages we've gotten throughout our lives and even our personality types," Atkinson says. "If you're a more go-with-the-flow, spontaneous, unstructured person in general — a personality type that serves you well in a lot of ways — you may have struggled with things like budgets in the past."

But she points back to being aware of your mindset behind budgeting. Remember, awareness is the key to success.

"Whether you have these negative associations by nature or nurture, you can set small, task-specific goals," she says. "Everyone is capable of building new habits even if it doesn't come naturally."