Sure, you know all about envelope budgeting, Japanese bullet journaling and the tried-and-true method of paying for everything in cash, but there’s a new budgeting method making waves in 2019: It’s called ‘passion budgeting.’
What is it? Passion budgeting is derived from the idea that we should prioritize spending on what makes us the most happy. It’s largely tied to the Pareto principle—the 80/20 method, which states that 80 percent of results comes from 20 percent of our efforts.
OK, but how does that apply to personal finance? In this case, the 80/20 method is the idea that 20 percent of one's budget is "flexible" and folks should steer clear of pinching pennies here. Instead, they should focus on cutting costs in the “fixed” 80 percent of their budget. (Things like rent, car payments and debt, which also zap joy along the way.)
Can you give me an example? If your Netflix account—which costs a cool $13 a month—makes your happiness levels surge, passion budgeting says you shouldn't cut that cost, but instead look at other more annoying expenses you can trim. Maybe it’s your monthly rent, which you can decrease by taking in a roommate. Maybe it’s your car payment, which you can eliminate by selling the damn thing and opening up a Zipcar account.
Yeah, but that seems easier said than done. Agreed. The reason “fixed” expenses (like day care or a mortgage) are fixed in the first place has a lot to do with the fact that they’re required expenses. (You can’t cut your child care coverage in half and still work full-time, right?) Passion budgeting is best applied if you have a lot of areas where you’re superfluously spending. (Think a gym membership you don’t use that’s setting you back $1,500 a year or a landline bill that’s $40 a month and going unused.)
So, prioritize happiness? Yes and no. We're all for a budget that takes a hard look at what's essential versus frivolous, but putting a premium on “passion” purchases is a little too YOLO, especially when time has shown that the best way to save is to make sacrifices in the short-term in service of the bigger picture. (Just our two cents.)