Why is budgeting so hard?

03 December 2020

Budgeting should be as simple as: money in, money out. Yet, for most of us, the thought of budgeting leaves us in a cold sweat. Generally, it’s something we put aside to deal with ‘another day’.

Why is that? Well, it turns out our brains aren’t particularly well suited to the concept of budgeting, and there are 3 key reasons for this:

Child's hand reaching into lolly bowl

1. Instant gratification

No doubt you’ve heard of the Stanford marshmallow experiment, which tested the concept of instant or delayed gratification with children. Essentially, a treat was placed in front of a child, and they could either choose to eat it then and there (instant gratification) or wait 15 mins for a greater reward (delayed gratification). Not surprisingly, many of the children couldn’t wait and chose to eat their treat first, rather than waiting for a better reward.

Willpower only goes so far

Willpower – which is a product of both our nature and nurture – has a large impact on our ability to choose between instant or delayed gratification.

So, it makes sense that you only have a limited reserve of mental willpower when it comes to budgeting. And feeling like you’ve failed at budgeting every time you buy a coffee will just make you want to avoid budgeting all together.

Instead, work out what your delayed gratification reward is. And keep that firmly in mind. Perhaps you want to be debt-free in six months? Or you want a long vacation overseas. Maybe you want to update your home appliances?

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Factor in a small amount for occasional splurges into your budget, so you get that instant gratification kick – without derailing your budget completely.

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Then, review your budget to see where you can make savings:

  • limit yourself to x2 coffees a week
  • eat out less often
  • take advantage of 2-4-1 deals
  • cancel your unused gym membership
  • use public transport instead of Ubers
  • shop around for the best electricity, internet, and phone rates.

When you’re being tempted by an instant gratification treat, ask yourself a simple question first: “is this purchase helping me move towards my bigger goal?”

  • Tip: Build some instant gratification allowances into your budget


Coffee cup

2. Opportunity cost

When you’re saving for something big, like a house deposit, it can be hard to see how spending $5 on a coffee here and there makes any difference to achieving your overall goal.

Also known as ‘opportunity cost’, this is essentially a battle between the concrete and the abstract, and can be a big reason many people have difficulty saving. This is because we understand the concrete ($5 coffee), but the abstract (a house deposit) is much harder to comprehend.

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Consuming today fuels instant gratification, but undermines our long-term planning and savings.

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Work out your opportunity cost

Working out your opportunity cost is identifying what you’re happy to miss out on now, in order to achieve your future goal.

Let’s say you spend $100 each week eating out. If you choose to keep eating out, you’ll enjoy some great dining experiences every week. However, if you were to save that same amount of money each week, you might miss out on the food and experience in the short-term, but you’ll get $100 in savings plus all the compounding interest earned on that money in the future.

Over a year, you’d have saved $5,200. If you then invest that money, you’ll start to earn interest, and over time that balance will grow.

In this scenario, the opportunity cost question would be: Is spending $100 to eat out every week more important to me than saving $5,200 in a year?

  • Tip: Work out the opportunity cost of spending today vs saving for the future


Puzzle pieces

3. Information overload

We’ve all experienced information overload. It’s when your working memory – which can only store or remember so much information or process so much data at once – gets overwhelmed. When this happens, we can’t take in any more information and we may get tired, grumpy, or annoyed as a result.

Budgeting is a great example of a task with a high cognitive load. How are you supposed to sift through months of bank balances to figure out what you’ve been spending your money on? And how do you predict your future expenses when there are so many unpredictable ones?

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Break your budget down into stages, so you avoid information overload.

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Avoid budgeting overwhelm

The most important thing is to keep your budget simple. A basic budget you stick to is 10 times better than no budget at all.

Break your budget down into stages:

  • identify your regular expenses first, e.g.: groceries, rent, transport, utilities
  • add in irregular and one-off expenses as you go
  • save up an emergency stash to cover unexpected expenses

Check in with your budget on a regular basis. Adjust it as you start to build up a picture of your ongoing expenses and spending habits. Your budget will grow and adapt with you, as your spending and saving habits change.

  • Tip: Keep your budget simple and review it regularly


mybudgetpal makes creating a budget simple. By syncing to your bank accounts, mybudgetpal automatically categorises your transactional data into categories for you, and suggests budgets based on your spending history. Keep track of how you’re going in mybooster.

By Jules Riley

Jules is the channel manager here at Booster. He is passionate about helping New Zealanders learn to manage their money better.