Everywhere you turn these days you are advised to have a budget detailing all your expenses. You are told it’s one of the cornerstones of your financial wellbeing, whether you are investing or trying to get out of debt.
Your likely response? “Ugh…”, a heavy eye roll, and swiftly scrolling to something more interesting on your smartphone.
This response is understandable. Above all things, we think of a budget as tedious and laborious. Two things come to mind: a budget removes all the fun from our lives (like the Grinch that stole our spending money) and it’s a hell of a lot of admin to keep track of all our expenses.
Who would ever want to keep a budget in such circumstances?
Firstly, let’s ditch the term “budget”. Words are powerful, and this particular one has associations of hardship and stinginess – not something many of us aspire to. Think of it instead as a spending plan. You still get to spend, just according to a plan.
The second part of this statement, “according to a plan”, is the important bit. As I’ve mentioned before, nothing worthwhile comes easy. If we want to get rid of debt or start investing, both in the short and long term, we need to be intentional about it. We have to know what our best life looks like and have a plan to get us there.
If the focus of your spending plan is currently more on spending and less on planning, taking a hard look at it will help you identify your biggest weaknesses. For example, we often underestimate the cost of groceries. We add up the amounts of our “big” weekend shops but forget about the twice weekly stop at the garage for bread and milk (and a packet of crisps and jelly beans – guilty!). These small shops quickly become a sizeable chunk of your grocery expenses.
Having a spending plan allows you to identify exactly where your money is currently going. Are you spending it in a way that gets you closer to where you want to be? Or are you frittering away your hard earned money on inconsequential things, leaving you with a dream but no way to achieve it?
Instead of viewing a spending plan as something that limits our lives, we should view it as a road map to financial freedom.
And the good news is that thanks to technology, maintaining a spending plan does not have to be an administrative burden. It will take some time and effort initially to determine where your money is going. Depending on the net position of your spending plan and what you would like to achieve, you might also have to make some tough decisions about which expenses to cut. However, once this initial setup is done, keeping track of your expenses is easy, whether through an app like 22seven, or with a simple spreadsheet and online banking.
We can delegate a lot of financial tasks to a financial advisor or broker. We can trust them to get us the best deals on policies and investments. But we cannot delegate our spending plan to anyone. We are the only ones who know how much our dreams are worth, and we are the only ones able to choose what goes into our convenience shopping basket at 7pm on some Tuesday evening.
Get in touch if you’d like to chat about reviewing your spending plan.