Is it painful to make a budget? Yes, it's tough, and you're not alone if you feel that way. Making a budget, or a spending plan, can feel painful because it exposes your financial nakedness. It forces you to look at your reality. We discuss how it can be a jarring process to see where your money is actually going, but it's a necessary step toward gaining control and making better decisions.

How do you create a spending plan as a couple? When working with a significant other, we recommend that you each individually write down your spending plan first. This approach can reduce friction, as you may find you are already closer on the numbers than you think. For instance, one person may list a specific expense like a massage as a "need," while the other may have an allocation for general "health" or "self-care" that covers the same thing. The key is to have the conversation together, but starting individually helps you understand each other's priorities.

What is the "backwards" method of budgeting? The "backwards" method is a way to create a spending plan by starting with your expenses first and totaling them. This can give you a clear picture of how hard you really need to work and helps you avoid limiting your potential earnings based on your current income. You list all your fixed and variable expenses like rent, mortgage, childcare, groceries, and entertainment to determine your total spending. This total then becomes your baseline for a spending plan.

How do you define what is a need versus a want? This is a common point of friction in many households and businesses. A need should be defined as something that keeps you alive or is a non-negotiable expense like a mortgage or electricity bill. A want is something you desire but could live without. We discuss how a "want" could be considered a "need" if you’ve already eliminated other wants. For example, a gym membership might be a need for your health, but you have options. We also recommend seeking an outside perspective, such as from a consultant or expert, who can provide unbiased guidance on what is truly a need versus a want.

Watch the full episode at https://youtu.be/pupwiR_oosQ and read more in THE ASCENT | 018.