Hey guys.

It's Chelsea from The Financial Diet. And this week's video is brought to you by Skill Share.

So this week we're going to be talking about making a budget, and more specifically, the lies we tell ourselves when we make one. A big part of the reason that we called ourselves The Financial Diet is because we believe that getting healthy with money is very similar to the way you get healthy with food, which is, to say, in a very moderate and progressive way that allows for the way you honestly live your life. Just like a crash diet for food won't work, a crash diet with money will leave you overspending and feeling anxious all the time.

And part of creating that Financial Diet that is healthy and long lasting is being super honest with yourself. That means that when you're creating a budget, no matter the amount of money you're dealing with, you have to be really, really transparent with yourself about how you actually spend and what you're actually going to be able to stick to. Most of us, though, when we're first starting a budget, don't tend to do this.

We tend to be overly ambitious and lie to ourselves in the process about our own habits. So we've put together five common lies that we tell ourselves when we're making a budget and, also, how to effectively deal with them. Number one-- it's fine, I can only have-- insert drastically cut-down number here-- to spend on going out per month.

So basically, a lot of people's first big moves when they look to start a budget is to look at how much they spend on going out-- and that includes everything from bars, to restaurants, to random events, and movies with your friends-- and say, oh, that's a waste of money. I should cut as much of that out as possible, especially when, if you're someone who has drinks when you go out, you can tend to do a lot of this frivolous spending while already a little tipsy. For example, that stop at the bodega on the way home where you get like three bags of chips and two diet sodas, that's probably not something that sober you would have spent on.

And don't get me wrong, it is good to want to reduce you're going out spending, especially because, for most of us, it represents the biggest part of our discretionary spending money, even more so than shopping. But just like with food, crash diets won't work. So instead of giving yourself an arbitrary low number that you think is the right amount to be spending on going out every month, look at what you're actually spending in that category.

An app like Mint will help you figure that number out. And then start by reducing 20% from that spending category. There's no one right number to be spending on going out every month, especially because, depending on where you live, the cost of something as simple as a beer or a dinner can cost wildly different amounts.

But everyone can start by trying to reduce from the number they're already at. And we've found that starting at around 20% in each category is a reasonable enough goal that you can stick to it without feeling like you've totally cut out your social life. As your brain adjusts to this reduced budget and gets used to it as the new normal, you can start finding even more thrifty ways to enjoy your nights out and seek to reduce the category even further.

But start with just cutting by 20%. And maybe it should go without saying, but that 20% you're taking out of the going out category should go straight into savings and investments. Number two-- I'm just not going to spend any more money on X or Y category.

I don't need it. You will always say this until you do need it. Let me give you a great example-- many people, when they're looking to really overhaul their budget or to start one for the first time, start by cutting out a category of spending because not only is it a really black and white way to rethink your money, it's also kind of a fun challenge.

And a lot of people do this in the form of a shopping ban. And on TFD, for example, we have many articles where people detailed their shopping bans, whether it was for 30 days or an entire year. But for every article we have like that, we also have an article for people who failed their shopping bans.

The truth is, it's extremely difficult to predict what you're going to need a day, a week, or six months from now. And more importantly, you're a human being who's subject to human being needs, and whims, and stupidity. For example, you might say at the beginning of January, no buying clothes for the entirety of 2017.

But then in June, you're go-to work blazer gets destroyed at the dry cleaner. What are you going to do? Just not have a blazer for work all year?

I think not. And even if it's not such a dire situation, the human brain is incredibly effective at defining things you want as something you absolutely need. You will always find yourself justifying something along the way, whether you've cut out makeup, or booze, or shirts.

A much healthier way to approach this is to say I'm generally avoiding X or Y category. But in my budget every month, there is a little splurge category. And some people also budget their splurge category by the six-month or one-year mark.

The point is, this is the area of your budget that goes to things that you're generally trying to avoid but might just come up inevitably from time to time. So let's say you have $200 set aside for every six-month period to go toward things you're generally not buying. That means that when your dry cleaner might mess up that go-to blazer, you don't have to feel like you're breaking some cardinal rule by getting yourself another one.

Because lest we forget, the moment you feel like you've broken your diet is the moment you will go off the rails because it doesn't matter anymore. Number three-- this is the budget I'm using for the year. Generally speaking, a budget is not meant to be the same throughout an entire calendar year.

So many things can happen in a year. You can start earning more money at work, or get a new side job, or start a new savings account, or move, or find that you can just be more efficient at saving somewhere. The point is, about three times per year it's really healthy to go through your budget, look at your statements, look at your spending categories, and really reassess if you're getting the most out of the money you're making.

It's also the most efficient way to avoid lifestyle inflation, which is basically when you start earning more money and, therefore, spending more money, and that becomes your new normal. A healthy budget means that even if you're earning more money suddenly, you're not spending more. You're just saving and investing more effectively.

And this multi-annual checkup is especially true if this is your first real budget. Because let's be honest, if this is your first real budget, you're going to have to be really, really generous with yourself in all spending categories to compensate for the fact that you're really not used to thinking in terms of a budget. If you're starting out on an early budget, chances are you cut maybe 20% here, 10% there to end up saving a little bit of your monthly take-home pay.

But the point of a budget is to train your mind to live well on less than you have so that you can eventually work up to higher savings goals. For example, if you're earning $2,500 a month take home, saving $400 to $500 of that seems enormous at first. But if you are constantly reassessing your budget and seeing where you can add a bit more income and spend a bit more smartly, that's definitely something you can work up to.

A long story short, letting a budget sit unchanged for an entire year is almost guaranteeing but you won't get the most out of it. Number four-- now I've made my budget, I'm ready to go! Now, this is specifically for people who are starting out on their first budget.

And I hate to be the bearer of bad news, but chances are high that if this is your first budget, it is probably going to be terrible. There are really two stages to making a first budget. And you can't just think, OK, I've written out all the numbers.

I've got my Excel sheet or whatever. I'm good. Stage one is taking a look back at about six months of your spending to see how you were living without a budget.

But stage two is looking at about three months with the budget and seeing where you could be saving more or where you've really misunderstood your own habits. Your first real budget will come after about three months of that initial one when you've had time to learn and adjust. For example, a common problem that you'll notice with a first budget attempt is that you've made it way too detailed.

For example, when it comes to shopping, a lot of people making their first budget will break it down into clothes, shoes, makeup, beauty products, and then you'll realize, hey, every month is different. Those should all go into one category. Maybe you can call it, how good I look, whatever you want to call it.

The point is, you will start to get more comfortable with your own spending habits and realize that making things more detailed does not mean they're easier to keep track of. In fact, when it comes to budgeting, it almost has the opposite effect because it makes you way too hyper-aware of every single purchase. You're never going to be able to plan your spending down to the individual purchase.

The point is to learn as you go with your budget to get more comfortable by planning in generalities. Number five-- I'm not the kind of person who can keep a budget. Now, this is probably the biggest lie I always told myself because it was the perfect excuse not to have to think or try too hard with my own money.

Deciding that you're just going to be one of those people who's bad with money is basically the only way to guarantee that you will always be financially illiterate. It's so easy to throw up your hands and be like, well, I'm not that type A kind of person. I'll never make a budget.

But it's 20 freaking 17. There are a million ways to keep track of your budget that don't involve you sitting there with an abacus, and a pen and paper, and one of those green accounting lamps from the producers, and all that stuff. If you're one of these people who gets stressed out just looking at an account or feel like you can't even open Excel, start looking at different apps that will help you do these things.

Lauren and I made a video awhile back about different apps you might not have heard of that will help you manage your money. And we'll link that in the description. For me, I always felt like I couldn't do that nitty gritty of adding and subtracting and keeping track of numbers.

It made me feel like I was in math class again, which was really upsetting. So about four years ago, I started using an app called Mint that helps do a lot of those number crunching parts for me. And it feels really manageable when I just open up the statement in my email.

And now that I've gotten so used to looking at my money, it doesn't scare me anymore to do the other parts. Don't kid yourself. Saying that you're just not a budget person, or you can't deal with money, or you don't know how to do math is a total cop-out.

Even if you have so little money that you feel like you can't find a penny to save every month, just writing it all out and being super aware of how it's coming in and how it's going out is the first real step to having control over it. It's how I first rehabbed my credit. But it's also now how I look at every year, not just how am I going to get to the end of the year, but where do I want to be in 10?

The day you say to yourself, I can totally have a budget, is the day you'll start making one. It's really easy to lie to ourselves about our habits, or our spending, or how we just approach money in general. And it's really easy to give up before we've even started.

But without a budget, you are guaranteed to almost always feel like you're broke and always be stressed out because you don't know how to plan. Start being honest with yourself and a healthy budget will follow. Chances are you've been lying to yourself a little bit about your budget.

But you've also probably been lying to yourself about learning new things. You're always saying, oh, I'm going to go back and take this class or, oh, I'm going to go back and get that skill. But somehow you just never end up doing it.

But that's why you should check out Skillshare. It's an online learning community for creators with more than 16,000 classes in design, photo, and more. And they are currently offering a two month, free trial to the first 500 people who go to the link in the description.

Lauren, for example, has taken everything from a lettering class with Jessica Hische, to a food photography class for bloggers, to After Effects video tutorials that help her make even more beautiful videos here on TFD. And plus, you can learn from anywhere. If you download the mobile app on Android or iPhone, you can tap into classes even when you're offline.

So support TFD and finally learn that skill you've been putting off by going to the link in the description to claim your two free month trial of all the amazing classes and tutorials they have to offer. Start learning. As always, guys, thank you for watching.

And don't forget to hit the Subscribe button and to come back every Tuesday for new and awesome videos. Bye.