Personal budget or 'personal tax'? How best to save money.

Imposing a 'personal tax' on yourself is a clever way to add to your savings account, Hamm writes, but it is quite similar to maintaining a personal budget. Which method will help you save money?

Kim Hong-Ji/Reuters/File
One-hundred dollar bills are seen in this photo illustration at a bank in Seoul. The 'personal tax' is a great tool, but in the end, just like budgeting, it comes back to personal discipline, Hamm writes.

Recently, Sweating the Big Stuff featured a great article on using a 100% “personal tax” to “force” yourself to save. The idea really is pretty cool:

Whenever you buy something that isn’t a necessity, you impose a 100% tax on yourself that goes toward your savings account. For example, if there is a Blu-Ray you want to buy on Amazon for $20, you have to have $40 to spend on it. $20 goes to the Blu-Ray and $20 goes to the savings account. As the redditor puts it, “your larger savings plan can dictate where the money goes that accumulates in this account. (i.e. IRA, 401k, emergency fund, etc)”

When I first read about this idea, I was a huge fan of the concept. It provides a great way for people to feel less “trapped” by money responsibility. It allows people to spend freely but still make progress toward savings goals. 

The more I thought about it, though, the more I realized that this system is essentially a clever approach to a budget.

Let’s say that, on a typical month, you have $200 left over after all of your other expenses. On one hand, you could have two lines on your budget (one for saving $100 and another for spending $100 freely). On the other hand, you could just pledge to save $1 for every $1 you freely spend.

Both wind up with the same result. You end up with $100 in savings and $100 spent freely.

That’s not to say that both methods are completely equal. They offer different psychological carrots, ones that will work differently for different people.

I find that having a budgeted amount that I can spend freely each month knowing that I am already saving for my goals is the right approach for me, but I can see that many other people would find the “personal tax” approach very appealing.

There’s still one more vital piece of the puzzle. Both approaches require self-discipline to work. If you’re not able to simply say “no” and stick to an agreement you’ve made with yourself, neither the “personal tax” nor budgeting will work for you.

Of course, there are many things you can do to “help” yourself with discipline. You can shop without credit cards, using only cash. You can intentionally limit the amount of money in your checking account so that you’re actually not able to overspend.

Still, in the end, it comes down to self-discipline. You’ll either look at things like this as restrictive and try to find ways to “cheat” or you’ll look at these things for what they truly are: self-rewarding.

If I’ve learned one hard truth about life, it’s this: if you can’t make agreements with yourself and stick to them and if you can’t control your own behavior, you’re going to struggle mightily with everything you do.

The “personal tax” is a great tool, but in the end, just like budgeting, it comes back to personal discipline. Can you make good choices over and over again? If you can’t, getting ahead financially is going to be a challenge, with or without a “personal tax” or a budget.

The post Self-Discipline, Budgeting, and the “Personal Tax” appeared first on The Simple Dollar.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Personal budget or 'personal tax'? How best to save money.
Read this article in
QR Code to Subscription page
Start your subscription today