Everything begins with a decision. Setting financial goals is no different.
Maybe you actually have made a couple of goals that you want to achieve — stop living paycheck to paycheck, finally pay off your debt or start an emergency fund. But you know how it goes: after a month or two, your resolve to adhere to your financial goals fades.
Here’s a fresh twist on budgeting that will let you live the lifestyle you love while simultaneously tackling your money goals.
Passion budgeting advocates that you live your best life and spend your money in direct proportion with your passions. Yes. Keep your $5 espressos. Dine at the best restaurants in town. Enjoy your music festivals. And hit your financial goals too.
Passion budgeting is probably the most pleasurable budgeting process on the planet. Adopt these five steps to build your own passion budget today.
1. Harness the Pareto principle
Budgeting is not about doing things right; it’s about doing the right things. And that means consciously deciding where you want to spend your money once and for all. Being purposeful with your spending completely changes your chances of financial success.
Passion Budgeting harnesses the power of the Pareto principle, which is the idea that 20% of inputs cause 80% of outputs. In passion budgeting, you will concentrate on the spending that drives your happiness and eliminate, or reduce, the rest.
2. Investigate your expenses
Once you have internalized the Pareto principle, the next step in passion budgeting is to assume a blank slate. That’s right: assume you are eliminating all your expenses. You are beginning with zero. The goal is to gradually add back expenses that you love, and need, until you reach a workable budget.
This begins with taking a collective inventory of your past spending. Examine both your variable and fixed costs.
Budgeting is never easy. It forces uncomfortable decisions.
Sit down and pull out your credit card and bank statements from the past three months. Go through them and highlight the purchases that brought you happiness or passion. For example, I live in Austin, Texas, and ACL Music Festival, which costs $850 for my wife and me to attend — we splurge on shaded seats — is a must. So that purchase is definitely highlighted.
But our high fixed monthly gym membership fees of $200 a month were shredded (resulting in $2,400 in annual savings) after we realized we were consistently opting for outdoor activities over gym time.
3. Analyze your spending categories
After you are done combing through your expenses, sum up all your spending into categories. If you are looking for a good place to start, try using these six common buckets: housing, food, transportation, going out, clothing, and miscellaneous.
Once you have your totals grouped into these categories, it is time to assign a passion weight to each of these. Your favorite categories should be at the top and those that you care least about at the bottom. This will provide an excellent visual of how you personally prioritize your spending happiness.
4. Prioritize your passions
You can’t manage what you don’t measure. Now that you have a clear view of your spending patterns, incorporate this knowledge into building a budget that prioritizes expenses you are passionate about. That might be $100 on coffee, $200 on sporting events, and $300 on restaurants.
Now that you know your key passions, cut expenses at the bottom of your categories ruthlessly. For example, rent — one of your highest and fixed costs — might have been one of your lowest-weighted passion categories. Maybe that means downsizing to a smaller and cheaper apartment.
Or perhaps that unhighlighted expensive monthly car note stems from a decision made years ago. It might be time to trade in that car for something more affordable.
Or maybe you still paying for an expensive cable bill you don’t care about? Cut the cord and opt for binging on your favorite shows a la carte on a less expensive platform.
I often see people cut or reduce the cost of gym memberships, music subscriptions and telephone bills. These savings can add up quickly.
As you decide which expenses to keep and which to cut, tough choices will be a natural byproduct. While you might not be able to afford all your passions, keep the ones that will drive your happiness and at the same time regulate your total spend.
Budgeting is never easy. It forces uncomfortable decisions. But that is what is required to meet your financial goals. Embrace those moments because they are propelling you toward success.
5. Build a passionate income
Cutting spending is one way to get your finances in order. But generating passion in how you make money is just as important as spending on things that make you happy. Be honest with yourself. Do you love your job? Does is spark passion or happiness in your life?
If you can’t find immediate passion at work, then focus on building up a résumé in something that does spark joy so that you can find a new job. You also can supplement your income in something that does, such as freelancing, a side hustle, or business.
For example, my passion for writing led me to start a blog, write a book and become a freelance writer, producing supplemental income streams outside of my professional work as a certified public accountant.
By injecting joy, interest and purpose into your career, you will set yourself up to make more money in the long run, and maybe even transition into a full-time passionate income.
The act of creating a budget has an illuminating effect on your finances and can magnify areas of improvement as well as emphasize areas you are already dominating. By using a Passion Budget, you will live a happier and more passion-filled life while mastering your money. And what a decision that would be.
Conor Richardson, CPA, is the author of “Millennial Money Makeover: Escape Debt, Save for Your Future, and Live the Rich Life Now” and founder of MillennialMoneyMakeover.com. Follow him on Twitter @ConorRich360.
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