According to the Myers-Briggs Type Indicator (MBTI) assessment, there are 16 different personality types broken down into four primary categories. If you’ve never taken the test, it tells you whether you’re an analyst, diplomat, sentinel, or explorer. Can you guess where you fit in?
With that many types of personalities, how can we expect things like budgeting to be one-size-fits-all? All of those “self-help” personal finance articles tell you to create a budget. Unfortunately, most of them don’t mention how your personality type plays into your budgeting strategy. Let’s talk about that.
Zero-based budgets are not for everyone
The amount you budget for certain expenses is what you will spend. Once it’s at zero, you have reached your limit. That includes recreational spending, living expenses, and clothing. Can you live with that? Some people don’t like to be under strict guidelines.
Dave Ramsey, founder of Financial Peace University, advocates for a “cash envelope” strategy if you want to adopt a zero-based budget approach. It is exactly what it sounds like. Put cash into separate envelopes for each expense and don’t use your credit cards.
Wait—what was that last part? Don’t use credit cards? Who does that? People who want to avoid debt at all costs, I guess. It’s a sound strategy, but it takes discipline. Ramsey actually recommends that you destroy your credit cards completely. Not sure we would recommend that, though.
“Pay yourself first” sounds much better
This strategy only works if you keep a tight hold on your spending and know exactly what your living expenses are. Those need to get paid, but everything else is secondary to paying yourself and building wealth. Retirement, savings, and investments are the primary focus.
Oops. That wasn’t what you were thinking? Paying yourself first doesn’t mean putting more money in your pocket to spend frivolously. It’s a system where you automate deposits to savings accounts and retirement portfolios. That’s called wealth building.
You’ll also want to toss debt into this mix. Automate credit card and loan payments along with deposits to your asset accounts. With a “pay yourself first” budget, nothing else matters until those payments have been made. Living expenses come next, then discretionary spending.
The 50/20/30 budget that hardly ever works
Here’s a fun game: Search through the list of 16 personalities and try to figure out which one of them can maintain a 50/20/30 budget. Then, look at your monthly income and try envisioning 50% for living expenses, 20% into savings, and 30% left for spending money.
First off, we’re talking about percentage of net wages. If you’re pulling in less than $5,000 a month, this formula does not compute. Even at $5,000, your living expenses would need to be under $2,500 for 50/20/30 method to work. If you live anywhere near a city, good luck getting your rent/mortgage, utilities, and necessities down that low.
How about a better idea? Get rid of your debt and you’ll have more money to do whatever you like to do. Use a calculator for debt consolidation to see if it’s worth taking out a consolidation loan. Pick a budgeting strategy that fits your lifestyle and personality while you pay off the loan, then focus on savings. How’s that for simple?
By Kevin Flynn
Kevin D. Flynn is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their eight wonderful grandchildren and two cats.
