Big 5 Budgeting
People have come up with a lot of different ways to do budgeting. For example, Bob sent me this link which outlines three perfectly reasonable methods. However, I want you to try something new: personality based budgeting. The following is an exercise to be done together with a partner. and although the title says Big 5 Budgeting, that is mostly because I like alliteration. This is really extends beyond simple budgeting to creating a more comprehensive financial plan for your family.
Preliminary Step 1: You and your partner should both take a Big 5 personality test. This will give you a score in 5 different areas (Extroversion, Conscientiousness, Openness, Agreeableness, and Neuroticism)
Preliminary Step 2: For each of the Big 5 personality traits, choose which of you is more dominant in that trait. Note that some tests replace Neuroticism with Emotional Stability (which is kind of like the opposite of Neuroticism). For the purposes of this exercise, we want to identify the person who is more threat sensitive, so go with the person who is highest in Neuroticism.
Each person should be assigned at least two areas of focus, so if one person has a higher score in more than three areas, choose one where it is close and “assign” it to the other person.
Step 1: Identify Goals (Extroversion)
The term extrovert is usually associated with how you relate to other people, but there is reason to believe that extroversion is largely based on dopamine receptors that cause you to be more goal-oriented (and less sensitive to risk). So whoever has the highest extroversion score takes the lead on identifying goals. What kind of income do you want to have? What about financial security and independence? Work-life balance? Career objectives?
Note that the goals shouldn’t just be the goals of the extrovert. That person is just responsible for taking the lead on this step. The reason is that the more extroverted member of the partnership is probably more goal-driven, and recognizing that can help you relate to each other.
Step 2: Identify Risks (Neuroticism)
In a way, Neuroticism is kind of like the opposite of Extroversion. In fact, I prefer the term ‘threat sensitive’ to neurotic because it makes it more clear that people with this personality trait are more sensitive to risks. Where the extrovert is driven to succeed, the neurotic person is motivated by not failing. So the person with the higher score in Neuroticism is in charge of identifying all the things that could go wrong.
Again, both people can contribute to identifying risks, but putting the more threat sensitive member of the relationship “in charge” of this step can take advantage of the fact that it is something they are probably more sensitive to risks.
Step 3: Identify Conflicts (Agreeableness)
An agreeable person is characterized by ability to sympathize with others. So, it is a good idea for this person to be in charge of identifying areas where your goals might conflict with risks. For example, if an extrovert has a goal of starting their own business (i.e., they want autonomy) this might be in conflict with the more threat sensitive person’s goal of maintaining a minimum level of income (or savings).
It should probably be noted at this point that in steps 1 and 2, you shouldn’t be afraid to identify goals and risks that are incompatible. Be clear about what you want, and what you are afraid of! Wait until step three to figure out whether they are compatible.
Step 4: Create a Plan (Openness)
Once you know your objectives and constraints, you can figure out a way to balance everything. Since every partnership is different, you will need to come up with a unique solution that meets your needs. Who better to come up with a unique solution than someone who is naturally creative?
I probably shouldn’t have to remind you again, but remember that both people are going to participate in this step together. But a person who is high in the openness category is going to be more suited to mentally exploring new options and coming up with a way to balance all of your goals and fears.
Step 5: Measure and Report (Conscientiousness)
No plan is going to work very well if you don’t have a system for keeping track of your progress. And who better to monitor your progress than someone who is organized and industrious (i.e., the two primary characteristics of conscientiousness). An organized person is well suited to being primarily responsible for identifying the key metrics that will help determine whether you are on the path to reaching your goals (and avoiding your risks).
Note that your metrics may not be all about spending (although that is obviously a big part of budgeting). Are there ways you can measure whether you are meeting other goals? For example, you may want to measure whether you are spending enough time with your family, or whether you regularly making progress on a hobby.
Once you have your metrics, the more conscientious member of the partnership is then responsible for keeping track and periodically reporting on your progress.
That’s it! The system isn’t rocket science, but taking each person’s strengths and personality into account when doing your financial planning is a good way to ensure that everyone’s needs are met and that you maximize each person’s comparative advantages. In other words, you can build on each other’s strengths to achieve greater unity and synergy. Good luck!