Women and Money: The Psychology of Budgeting

By Linda Descano, CFA®, President & CEO, Women & Co.

Have you ever wondered why budgeting is so challenging when it's as simple as adding, subtracting and multiplying? True, the math is the easy part. But knowing your math facts cold doesn't help you master the emotional component of managing your household's finances. Key to successful budgeting is a good attitude, consistent communication, and an ongoing commitment.

Adjust Your Attitude

A budget is more than a tool to help you manage your money effectively; it's also an important guidepost to indicate that you're moving in the right direction financially. Done well, a budget can help you prepare for unanticipated expenses, and afford you the luxury of spending your money on the things that are most important to you.

On the other hand, budgeting is a painful penny-pinching exercise that sucks the joy out of life. Just joking. But if you do see it this way, then you are bound to become frustrated and discouraged.There are real benefits to training yourself to think of budgeting as a constructive plan for spending wisely that encourages you to indulge now and then.

Take some time to examine the psychological factors driving your financial behavior. Ask yourself:

• Is money a sign of power or control in your relationships?
• Do you use it to boost your self-esteem?
• Is it the "heady rush" of making a new purchase that's behind your spending?
• When growing up, did the subject of money or budgeting start arguments?

Communication is Key

One roadblock to maintaining a budget and financial plan is disagreement between significant others on the subject of money. Perhaps what you consider to be a "want" is a "need" to your spouse/partner. Whatever the situation, inevitably, discord will reduce your chances of financial success. So do the work to resolve it.

It's critical that both you and your spouse or partner are involved in all stages of creating and maintaining your household finances. Share your feelings about money and experiences that you have had (see questions above). Work through underlying issues -- whether one is a spender or a saver -- together. Obviously, you'll want to keep anger and resentment out of your discussions in order to work toward mutual goals.

Be honest about the sacrifices that you may need to make to achieve your goals, but also don't forget to talk about the benefits that you will both derive from being financially fit. If you and your spouse or partner have very different spending habits, you may want to set a spending cap for the household. If either person wants to spend over the cap, she/he needs to discuss it first with the spouse or partner.

If you and your spouse or partner can't agree on a budget or financial guidelines for the household, consider asking your financial professional for help. Your professional can help you think through the issues objectively and develop a family mission statement that articulates just what your money values are. Not only can it provide a benchmark for you and your spouse/partner to refer to in the future, it also can be a great way for instilling good money values in your children. In fact, some families take it one step further and devote an evening per month to discussing their family mission statement and finances.

Commit to Your Budget

A third element universal to successful budgeting is commitment. Like it or not, budgeting is not a discreet event, it's a lifetime journey. To be successful, you need to monitor your progress regularly and adjust your budget periodically to stay in sync with your changing life. A good rule of thumb is to review your budget and long-term financial plan with your financial professional at least once per year.

Think differently about budgeting. We all have financial goals, but it takes both constructive planning and a good attitude to bring achieve them.

About the Author:
Linda is President and CEO of Women & Co., a service of Citi that brings women relevant financial content and thoughtful commentary to get them thinking and talking about money. Prior to joining Women & Co. in 2003, she served as a Director and Portfolio Manager with the Citi Private Portfolio Group from 1999 to 2002 and Senior Vice President and Director of Environmental Affairs for the Citi predecessor company, Salomon Inc. which she joined in 1994. She received a 2011 Luminary Award from Womensphere® and the Urban Zen Foundation for the work she does in actively changing the lives of women and was the New York recipient of the 2009 Corporate w2wlink Ascendancy Award.