How Banzai Teaches Budgeting
A lot of people budget ineffectively. When people budget the traditional way, what often follows is a counterproductive mix of guilt and analysis paralysis. It’s tempting to count last month’s misfire budget as a loss and move on. We at Banzai have a different approach.
We teach budgeting with one purpose in mind: we want students to have a healthy relationship with money. When students learn how to take control of their money and stay accountable to themselves, they find more confidence and want to make better decisions.
Everything in our courses falls into three main principles:
- Know where your money is and what it’s for, so you always know what you’re spending.
- Recognize financial trade-offs, since not every financial decision is clearly good or bad.
- Plan for the future, instead of looking at how much you’ve already spent.
Know Where Your Money Is and What It’s For
A lot of people check their checking account balance pretty frequently, but they’ll often stop there. They know where their money is but don’t have a solid grasp on how to spend it. They might check to see whether they have enough money for rent or for a big purchase, but they’ll forget about other expenses they might have, and they’re doing constant math in their head.
Banzai courses are designed to make students divide all their income into categories, similar to envelope budgeting. You have budget categories and subtract the funds from those categories when you spend and when you receive income in real time.
Having this kind of clarity on how you spend your money helps you make more informed life decisions, because it helps you see where your priorities are. The key is to always make sure the sum of your budgets equals your checking account, because then you have fully accounted for all your income. It’s much easier to overspend when you aren’t updating your specific budget categories regularly, but in our budgeting method, you can’t just overspend and move on. You have to account for every expense and income in the game, which is also sometimes called the double-entry method. [We don’t use double-entry accounting in Junior]
Recognize Financial Trade-Offs
When it comes to thinking about money, it’s natural to get nervous and even defensive. A common defensive mind-set in money is black-and-white thinking, where we view a financial decision as either all good or all bad. But real adult life isn’t so clear, is it?
We at Banzai recognize that there are often trade-offs (both positive and negative) for just about every decision. Very seldom is there an obvious “right” choice, and the same applies to money.
At some point in every Banzai course, the student is faced with a dilemma: do you go on that vacation? Do you buy a new car, or do you try to keep your old car going? Do you splurge on a fun night out?
Instead of instilling guilt when you decide to take that trip to Mexico or buy a new car, you see positive or negative outcomes either way. For instance, in Banzai Teen, when your car starts breaking down, you have the option to repair your current car or buy a new one.
The knee-jerk reaction might be to keep your current car and repair it. It seems like the obvious, financially responsible decision, but it ends up costing students hundreds of dollars more than it would to just buy a new car when first prompted. Why do we approach this scenario this way? Because that kind of stuff actually happens in real life.
We also consider that no matter how much you might meticulously categorize your budgets, you still might overspend in one category. That’s fine; it’s going to happen in real life. You just spend the difference from another budget—a trade-off. Trading off is what makes it possible to plan for the future, because you’re not overspending your overall budget.
Plan for the Future
Think of a time you looked back on spending for the month and realized that you’ve overspent. This experience is much more common with people who budget the traditional way, where you look back at what you did instead of planning for the future. Looking back doesn’t prompt you to change, because you’re only focusing on what you did wrong. Looking forward to your plans is more motivating and positive, and it encourages you to think of money as your way of achieving your goals instead of as a guilt trip every time you eat out.
In all three courses, Plus, Teen, and Junior, the student is given a goal in mind. In Junior, it’s a bike; in Teen, it’s college tuition; and in Plus, it’s a down payment for a house.
Planning for the future in personal finance also means you need to keep an eye on your money spent in each budget category. Our method also includes having what’s called a “Reserves” budget, where you track how far you’ve come in your savings goals or how far you’ve fallen behind.
A reserves budget plays two roles:
- To help you track debt, and
- To help you save for a rainy day.
Life continues, and your expenses aren’t going to go away just because you’re in debt. You don’t just stop living. Since the balance of your accounts has to equal the balance of your budgets, one budget has to go below zero if you’re in debt. In traditional budgeting, if you’re in debt, your whole budget goes below zero, but in the Banzai course, students have to make a trade-off.
When you have a reserves budget, you can more easily see how much left you need to save for your goals, which we emphasize in our courses.
We teach students to think differently about money. When students have budget categories and know what their money is for, they’re more prepared to handle it responsibly. When students recognize that there are trade-offs to just about every financial choice, they’re more likely to understand the impact of their habits and life decisions. And when students have a savings goal in mind, they will save more conscientiously.