ABCs of budgeting # 3 (it is possible to design a budget without swearing too much)

Here we are again – you and I and your budget. We aim, in this blog, to give you the tools to look at your needs, your wants and your current reality in a way that would help you to order your thoughts, break things down into digestible chunks and come away with a sense of direction, firmly on your way to a working budget. As always – every person’s situation is unique. The information in this blog is just that – information. Also, due to the constrictions of the word count for this blog, only so much information can be communicated.

It may be a very good thing to make an appointment with your Financial Advisor, once you have done some of the work, so that they can throw a cautionary professional eye over it and congratulate you on your efforts.

Before we get the wheels rolling, let us review the previous two blogs in this series of three:

  • You do not have to like or be good at numbers to succeed at budgeting, but you do need to be an adult about it
  • Though life cannot be reduced to numbers, keeping record of yours is necessary to keep you from spending money without thinking
  • Your subconscious biases, fears and need to self-soothe are often stronger than you suspect
  • It helps to have a manifesto that spells out what you believe and where you are going
  • It is good to know who your constituents are – those voices in your head that influence your inner financial dialogues and decision-making
  • One should be realistic at all times – a positive track record builds trust

The nuts and bolts of a budget

Ultimately, a budget is a recording tool that tells you how much money is coming in and how much is going out – how, when, where and why. Both income and expenditure can be static or dynamic. Some cross your financial radar regularly, some are once-off occurrences.

Buying bricks and mortar and all things solid

Here we are talking about the regular, dependable sources of delight and pain – your salary, your rent, your gym membership – the monies you can depend on receiving and spending every month. This may seem the easiest to plan for and you may not even give it much thought. You may, like most people, have a slew of automated transactions in the form of debit orders that goes off your primary bank account every month.

Out of sight, out of mind may be the easiest and safest way to make sure your responsibilities are taken care of, you may say. But do you even know what all these debit orders are? When last did you go to the gym? When is your cell phone contract up for renewal (remember data prices has gone down) and is what you pay for car insurance in keeping with the value of your car? Just because something provided the best bang for your money at the time, it doesn’t mean this is so, today.

We suggest that, as a first step in the budgeting process, you make a list of all your regular income and expenditure throughout the month. It is often helpful to write down the source, such as the name of the insurance company you use for car insurance, so that when it comes to reviewing these expenses, you will more easily be able to access the information.

Next, take the time to look at each expense. You can ask yourself the following questions:

  • Do I really need and use it? (If not, how do I get out of it? There may be contractual obligations)
  • Could I get it cheaper elsewhere? (Remember to compare oranges with oranges though)
  • Who could best advise me on this? (Mr Google may be helpful, but often a live and trusted human like your Financial Advisor who knows your circumstances could be better)

Please welcome your new bbf’s (best budgeting friends), Little Black Book and his cousin Pen(cil)

A fair share (perhaps even the lion share) of your expenses may be less easy to pin down, you may say, like seasonal fruit and veg prices, your petrol consumption or the income from your side-hustle. We beg to differ. All it takes is commitment, a bit of time and this amazing two-part, portable technology you may have heard of – the one part is either ink or lead-based and the other should be harvested from sustainable forests…

 Do write up what you spend. Our best advice is to do so immediately. Make sure your pen and paper technologies are always available in your bag or kept in an easy to reach place, like your car. You may of course use the notes section on your phone as well. Whether you choose a high-tech or low-tech approach – make it a habit. Three columns will suffice – date, item, amount. You may want to add location.

At the end of each month, set some time aside to process your entries. Make yourself columns in which you group variable expenses together. You may consider the following categories:  groceries, social, health and wellness, education supplies, house maintenance. Repeat this over three months. At the end of such a three-month cycle, you can start to identify trends, when you compare what you spent in each category every month. This should allow you to work out an average.

Tracking your spending as described above is a good practice to continue with. The longer you can reliably track your spending habits, the better your ability to predict an average would be, which of course makes it easier to plan ahead. Also, over time, you may learn things about yourself that you may not have notice in the short-term. This may help with accountability, goalsetting and motivation.

That moment the siren in the casino goes off … or not

Yay for you! You got all five of the cherries in one row! Ca-ching!

Oh no! Your once-in-a-lifetime holiday in Venice has to come to an abrupt end. The South Easter fanned some braai coals your air BnB tenants thought were extinguished into a full-blown fire and burnt your house down …

Those who are allergic to budgeting often quote the unpredictability of life as the reason why they do not bother to plan. Interestingly, research shows that Lotto players who win big are more than three times more likely to become bankrupt than the regular Jo. Mostly, the reasons for this are poor planning, bad spending habits and showing off, which creates expectations from others….  

Life is expensive, who has money for anything other than bread, those averse to budgeting wails! Well, you never know how much you need home insurance until something like the above-mentioned calamity strikes.  

The thing with unexpected expenses is that the influence of these can be felt for months if not years after the event. If you have not put an emergency fund in place for yourself and your significant others, you could be paying off loans with astronomical interest rates for the rest of your life. Again, we invite you to make an appointment to see your Financial Advisor. We can help you evaluate your risks and set up policies and an emergency fund to cover the rest.

Future fun and games

It is easy to get bogged down by the here and now. And yes, all we really have control over IS the here and now. No-one can deny that it is important to have balance in your life, though. If you do not experience some light and joyful moments, chances are you are going to grow resentful and pessimistic. This may activate your Inner Rebel who may well take your finances hostage with some unplanned and unnecessary spending sprees that feels good in the moment, but painful over time.

The thing is, we often seem to have more month to our money and too much activity for our hours. Before you know it there are neither energy nor resources left, yet we soldier on, as that is what we do as Responsible Adults. I am here to tell you that it does not have to be so. With careful planning and astute money management you can make a holiday a reality in the foreseeable future, if you start by building it into your budget today. Take a chance on happiness! Contact us, so that we can build a better, more enjoyable future together!  

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