Creating a budget is the perfect way to take control of your finances and achieve financial freedom, but it’s much more than numbers on a spreadsheet.
When first learning to budget, it sounded as simple as balancing your income against your debts. As easy as writing down how much you expect to have and how much you owe (and who you owe it to). Yet, several studies show Australians fail to stick to their budget every year.
Maybe, it’s not the planning but the execution that allows budgets to slip through the cracks.
Studies have shown that more than 80% of people spend everything they earn AND 9% spend more than they earn through credit cards and personal loans. As the pandemics effects begin to truly sink in, consistent pay has stopped, and quarterly bills are about to arrive, there are people who are going to need a plan B … and fast.
Nobby Kleinman, money mentor and author of Money Rules, found that Aussies have always known how to create budgets during his 30 or so years working in personal finance. They know they should spend less than they earn and pay the highest-interest debt first, but many families can’t see past the dollar signs on a paper.
They don’t see the Friday night glass of wine or the morning coffee shop stops… and they definitely don’t see how they add up to going over-budget. Aussies are constantly told to, “just spend less,” but on what?! That’s where having a third set of eyes comes in handy.
It’s time to remove the stigma that budgets mean you have to lose significant parts of your lifestyle. Having an independent party review your budget provides a realistic look at where you can save and what’s holding you back.
Many times, when looking at your budget alone, you feel a need to compromise your lifestyle to fit a certain budget… this only leads to conflicting spending habits and poor budget execution.
Instead, have a conversation with someone about your budget, as Kleinman does. For example, instead of asking couples and families to reduce their monthly expenses $100 a week by eating out less, Kleinman suggests they spend $150 in one night for a monthly date night. This saves roughly $3000 a year, and no one has to sacrifice.
“You don’t have to cut going out for a meal,” says Kleinman, “You don’t have to cut out spending on clothing. Whatever it is you enjoy, you keep doing. But if you’re prepared to make changes, think about what impact it will have.”
Adopting frugal lifestyle choices – such as baking at home, cycling, and playing games with her family at home – have proven fruitful during the pandemic for “frugalista” money blogger Serina Bird.
Another frugally-focused money-man, Matt Morrison, has seen success since the pandemic took hold. As the author of Freedom, Lifestyle & Legacy and financial adviser at The Practice, Morrison notes the company is making better decisions about what’s necessary from an expenses point of view. “And if they maintain that simpler lifestyle, they might have greater savings ability when we’re out of this current situation.”
Having a friend or adviser look over your budget line by line is essential to living a frugal, yet enjoyable life. Together, you can find where you spend the most, where you don’t have to spend as much, and where you don’t need to be spending at all.
“Straightaway you can identify some easy wins,” says Finn Kelly, a financial adviser at Wealth Enhancers, “We’re in a subscription world these days and when times are good we just rack the subscriptions up and then suddenly we realise, ‘Oh, I didn’t even know I was paying that anymore’.”
Once you have proper conversations about where your money is going, you have to draw a line in the sand on your expenses. Then, break each up into manageable chunks.
Morrison suggests thinking of your budget in terms of monthly cash flow, breaking up any annual bills into monthly chunks as to not forget them. This allows you to see a bigger picture than week-by-week, but also keep a keen eye on those easily forgotten expenses.
His tactic to make this work involves liaising with your utility providers/bill collectors to make monthly payments through direct debit. This helps to even out expenses over time rather than taking a hit every few months with bigger bills.
However, Morrison’s method isn’t the only one to find success. Finn Kelly prefers the acute weekly budgeting method, finding it helpful for those needing to get more in tune with their finances. Using the weekly budgeting method, you can break down expenses and income into daily micro-budgets.
Collectively, these advisers agree that budgets are more about placing positive constraints on your lifestyle to empower you and help take control of your finances. Finding the method that works for you may take some work, however, having a friend in your corner (and on your budget) has proven quite beneficial.
After nit-picking through your expenses with a friend, finding ways to save and re-allocate funds, it’s now time to set your sights on the other end of your budget. Your income! This simple, but often hard to implement strategy focuses on increasing your income as a means of relieving budget stress. However, this is often easier said than done. Kleinman often asks clients what they know from the training, education or experiences they’ve had over the years. He then asks whether that client can create a course, eBook, guide, etc. to teach others for profit.
“Even if it’s producing $20 a day, you start adding that back into your budget and you can see what it’ll look like,” says Kleinman. “… do something where you can charge people for your knowledge and ask yourself what that would be worth.”
People often work tirelessly just to maintain an income, but this doesn’t mean you can’t find other streams of income in your regular job as well. Plus, your employers would be eternally grateful.
The temporary shutdown of businesses has forced several of them to finally go online or accelerate other projects that had only just started… and those with the corporate skills necessary can share their expertise with these companies.
This is the time to find the mini entrepreneur inside you. And you should really find it quick, as many companies may not bring back furloughed employees after the shutdowns lift.