Creating a Budget in 2021? Think Small.

Summary

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WSJ Your Money Briefing

Episode: Creating a Budget in 2021? Think Small.
Date: December 29, 2020
Host: J.R. Whalen
Guest: Julia Carpenter (WSJ Personal Finance Reporter)

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Episode Overview

This episode examines why traditional, big-picture yearly budgets often fail—especially after a year of upheaval like 2020—and offers expert advice on how to create effective "micro budgets." The conversation centers on breaking financial goals into smaller, more flexible increments, focusing on short-term planning, and celebrating smaller wins to build financial resilience and motivation.

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Key Discussion Points & Insights

1. Rethinking Annual Budgets

• The difficulties of long-term goal-setting, especially amid unpredictability (like the COVID-19 pandemic).
• The psychological challenges of chasing large, eventually overwhelming goals without clear, manageable steps.
• Financial experts now recommend focusing on shorter timeframes instead of annual resolutions.

Quote:

"Setting a really big, huge goal can feel unachievable. And if you're unable to carve out a path for that goal, you're just going to throw your hands up... and say, okay, let's just chuck it out altogether."
— Julia Carpenter (00:58; 02:26)

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2. Psychology and Motivation in Budgeting

• The importance of celebrating "tiny wins" to motivate continued financial discipline.
• Recognizing savings in small amounts (e.g., saving $10 in a day) has more impact on motivation in a micro-budget than when seen as part of an annual goal.

Quote:

"Celebrating the tiny wins is a really key thing in this smaller scale budgeting... that feels more momentous on this smaller scale."
— Julia Carpenter (03:01)

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3. The Micro-Budget Approach

• Suggests using timeframes such as weekly, biweekly (pay periods), or monthly budgets rather than annual ones.
• Enables immediate adjustments and flexibility, as opposed to waiting for year-end corrections.
• Especially useful for those living paycheck to paycheck, providing more control and reducing anxiety.

Quote:

"Choosing a smaller timeframe and making tiny changes to your budget can be hugely beneficial... it also gives you room to be flexible and to make changes in real time."
— Julia Carpenter (03:35)

"Looking at that smaller scale gives you a little bit more control and power over what you're doing."
— Julia Carpenter (04:06)

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4. Flexibility and “Fresh Starts”

• The pandemic highlighted the need for flexibility—many found themselves unable to start anew or make progress with rigid long-term plans.
• Micro-budgets allow for a sense of new beginnings on a regular basis (weekly, daily, by pay period).

Quote:

"Looking at a smaller time frame... allows you to have a bit more of a fresh start. It allows you to feel like you can start anew, that you can pivot, and that you're not kind of trapped in this same limbo."
— Julia Carpenter (04:54)

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5. Smarter Saving Tactics

• Short-term budgeting should still account for longer-term, recurring obligations such as taxes and rent.
• Automating deductions and creating specific savings “buckets” can make saving more manageable, even within micro budgets.

Quote:

"Setting up an automatic deduction or creating buckets within your savings account for these different goals... you don't have to worry about it with this smaller budget."
— Julia Carpenter (05:45)

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6. Pitfalls and Precautions with Micro Budgets

• There’s a risk of focusing too narrowly and neglecting longer-term financial needs (emergencies, taxes).
• The importance of setting up safeguards to remember and prepare for larger, infrequent expenses.

Quote:

"Being aware of those things on the front end and maybe setting up some fail safes to make sure you won't forget those is key to making this successful."
— Julia Carpenter (06:17)

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Notable Moments & Quotes (with Timestamps)

• "2020 definitely taught us to expect the unexpected and to be able to pivot those goals or maybe refashion them altogether."
  — Julia Carpenter (02:11)
• "If you're looking at a week or even a day... you feel like you have way more control over that smaller timeframe."
  — Julia Carpenter (04:06)
• On the sameness of pandemic life:
  "We had this timeline that kept getting extended and extended... waiting to see what would happen with the virus and the recession."
  — Julia Carpenter (04:54)

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Timestamps for Key Segments

• 00:35–02:11: Introduction, why big goals often fail, and the value of flexibility.
• 02:11–03:35: Psychology of goal-setting, importance of small wins, and micro budgeting timeframes.
• 03:35–04:44: Benefits of short-term budgeting; adapting for paycheck-to-paycheck living.
• 04:44–05:38: Flexibility, dealing with uncertainty, and micro-budgets as fresh starts.
• 05:38–06:17: Smart saving within micro budgets; automation and buckets for recurring expenses.
• 06:17–06:46: Potential pitfalls of micro-budgets and the need for safeguards.

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Summary

The episode provides actionable advice—endorsed by financial experts—on adjusting your personal budgeting strategies in response to a chaotic, unpredictable world. Instead of traditional, overwhelming annual resolutions, micro-budgets enable more frequent reassessment, quicker pivots, and increased feelings of control, while still stressing the necessity of planning for both short and long-term obligations. The approach keeps listeners motivated and prepared, no matter what the new year may bring.

Transcript

[Julia Carpenter]

Still running global payroll like a relay race Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.

[J.R. Whalen]

Here's your money briefing for Tuesday, December 29th. I'm J.R. whalen for the Wall Street Journal. 2020 has been rough on people in most areas of their lives, not the least of which is their personal finances. But if you're thinking of setting up a personal or household budget for all of 2021, instead, try thinking smaller. Many experts suggest setting up a series of micro budgets.

[Julia Carpenter]

I think this year especially has really emphasized to people that you have to be flexible and that plans change. But Even beyond the 2020th of it all, setting a really big, huge goal can feel unachievable. And if you're unable to kind of carve out a path for that goal, you're just going to throw your hands up if you're not making any progress and say, okay, let's just chuck it out altogether.

[J.R. Whalen]

Our personal finance reporter Julia Carpenter has been checking in with financial planning experts about the value of taking small steps toward budgeting your way to a successful 2021, and she'll be here to talk about it after the break. New Year's resolutions often get tossed aside as life's ups and downs get in the way, but people setting personal finance goals are more likely to find success if they think month to month or even day to day, rather than looking at the entire year. Our personal finance reporter Julia Carpenter has been talking to money experts about this, and she's with us to discuss. Julia, thanks for being with us.

[Julia Carpenter]

Thank you so much for having me.

[J.R. Whalen]

So a lot of people started 2020 with some pretty lofty personal finance goals, and I bet by now their finances look nothing like what they envisioned.

[Julia Carpenter]

2020 definitely taught us to expect the unexpected and to be able to pivot those goals or maybe refashion them altogether.

[J.R. Whalen]

Okay, so let's talk about what's wrong with making goals for the new year. Why do experts think that steers people in the wrong direction?

[Julia Carpenter]

I think this year especially has really emphasized to people that you have to be flexible and that plans change. But Even beyond the 2000s of it all, setting a really big, huge goal can feel unachievable. And if you're unable to Kind of carve out a path for that goal. You're just gonna throw your hands up if you're not making any progress and say, okay, let's just chuck it out altogether. And that way the goal that you've set, that maybe could have been three small, smaller goals or some more bite sized goals, just gets forgotten altogether.

[J.R. Whalen]

How much does psychology play a role here in achieving success?

[Julia Carpenter]

One of the professionals I talked to said that celebrating the tiny wins is a really key thing in this smaller scale budgeting. And so if you see, hey, I didn't spend that $10 today that I maybe would have, that feels more momentous on this smaller scale than if you look at it in the course of a month and say $10 whatever, that celebrating those tiny wins and feeling the actual impact of them does a lot to keep us motivated.

[J.R. Whalen]

All right, so let's talk about the smaller bite size goals or micro budgets. If you're not budgeting for the year, what kinds of timeframes should you be budgeting for?

[Julia Carpenter]

Choosing a smaller timeframe and making tiny changes to your budget can be hugely beneficial. So thinking about a timeframe that's maybe a pay period, a month, a week instead of a whole year or a whole season, allows you to examine everything that you're doing with a keener eye. But it also gives you room to be flexible and to make changes in real time as opposed to at the end of a year or after mistakes have already been made.

[J.R. Whalen]

But a lot of people already live paycheck to paycheck. How can you budget within that timeframe?

[Julia Carpenter]

I think being aware of the constraints and being aware of how you work is even more helpful. So knowing that I have to have this next paycheck, I'm not going to have money after this week. My hours could be cut. I'm going to have to adjust. Looking at that smaller scale gives you a little bit more control and power over what you're doing. If you feel like you're looking at a whole year and everything is so uncertain, that's gonna lead to that kind of throw your hands up in the air, forget it. All effects that we talked about earlier. But if you're looking at a week or even a day, in some cases, you feel like you have way more control over that smaller timeframe.

[J.R. Whalen]

You know, 2020 was all about unexpected events that can throw your plan, any plan, out the window. What have you heard from the experts you've spoken to about the best way that people can plan for that?

[Julia Carpenter]

One of the things that really stuck out to me about this year is that talking to experts, we didn't have any fresh starts. We had this kind of sameness that took over so much of our lives. If you were out of work, you were waiting to get more work. If you were working from home, you were no longer going to the office. We had this timeline that kept getting extended and extended, extended as we waited to see what would happen with the virus and the recession. But if you're looking at a smaller time frame, you can then try and think about what different things happen in the course of a week, what different things happen in the course of a day or a pay period. And that allows you to have a bit more of a fresh start. It allows you to feel like you can start anew, that you can pivot, and that you're not kind of trapped in this same limbo.

[J.R. Whalen]

Now, budgeting to put up guardrails and be smarter about spending, that also includes being smarter about saving, right?

[Julia Carpenter]

Absolutely. I think a lot of the automatic deduction advice we hear is especially relevant right now. Budgeting on a smaller time frame doesn't mean that you can forget tax season. It doesn't mean that you don't pay your rent at the end of every month. But setting up an automatic deduction or creating buckets within your savings account for these different goals means that you can already put aside money for that. You don't have to worry about it with this smaller budget, but then you can pay more attention to your day to day cash flow.

[J.R. Whalen]

Okay, so focusing on the day to day can be effective. But what are the pitfalls of keeping a narrow lens that people should watch out for?

[Julia Carpenter]

I think one of the things that scares people about zooming in is that they then worry they're not going to be able to zoom out. And there's certain things that we have to zoom out for. We have to prepare for tax season, we have to save for emergency expenses. There's expenses that occur on a monthly or a seasonal basis that you have to prepare for. And I think being aware of those things on the front end and maybe setting up some fail safes to make sure you won't forget those is key to making this successful.

[J.R. Whalen]

All right, that's personal finance reporter Julia Carpenter. Julia, thanks for coming on the show.

[Julia Carpenter]

Thanks for having me on.

[J.R. Whalen]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[Julia Carpenter]

Still running global payroll like a relay race deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you Already use Workday SAP Netsuite operate like a local everywhere visit d e l.com WSJ that's d e e l com WSJ.