Everyone remember the four habbits of people who have low financial stress. We’ll I’ve done the” write down how money is spent” thing since March (it now being July) and I’ve got to say it freaking terrified me. Particularly when I realised how much I was spending and that this finance blogger was actually spending MORE than I earned. I’ve got to say it didn’t do much for my levels of “financial stress”. Now it’s time to start on habit number 2 and in no particular order I’ve chosen to “use a written budget”. I guess because it’s the hardest step. If I can get this out of the way then I’ll have something to “evaluate my spending” against and I’ll be able to “make plans on how to use my money”.
I’ve never used a budget before in my life. I’ve never sat down and written out all my expenses. I’ve never seen my parents write a budget either this just wasn’t part of my financial education at home. Frankly my financial education at home was limited to “get a good job” and “study hard”. Which is probably similar to most of you guys? No?
The only budget I’ve ever learnt about is a cash flow budget when I did my Accounting Cert IV (I think I’m now qualified to be an admin assistant at an accountancy firm:)). Basically in business it doesn’t matter how much money your making, what matters is: can I pay my bills tomorrow? If you can’t your dead. Hence “Cash Is King”. So I’m going to use a cash flow budget. The main problem with a standard budget is that you record your expense and then divide them evenly but expenses aren’t distributed evenly accross the year! ( ever noticed that the rates, the insurance and the electricity bill all come at the same time). When you do a normal budget you fail to account for the correct amount of savings required to meet your expenses.
I’ve done this before. I look at my bank balance there’s a large amount of money in there. I go “that’s awesome” and buy the (insert desired whatsit here) I’ve been wanting then a bill comes up and I’m in trouble. Sound familiar? Well hopeful this should help me.
And now I’ve got some figures on my REAL spending I’ve got something to base it on. The areas I want to focus on are my grocery bill, specifically my alcohol bill, my take away food spend and my DIY spend.
So who’s got some budgeting tips for me?
I’ve come to realise that knowledge doesn’t matter, it’s the implementation that’s key.
My historical approach to budgeting has been to first record all of my expenses for one or preferrably 2 months – and I mean everything, down to the penny. This gives me an idea of what my variable, recurring expenses are, such as restaurants, grocery, gas, utilities, etc. Then, I look at my standard, fixed expenses – living expenses, phone service, etc – and add them to the budget too. Next, I forecast the timing of my period payments that will happen irregularly throughout the year. Putting this all together, I then have the information I need to develop a budget.
After implementing this budget, based on historical spending and known future commitments, I recommend tracking against the budget for a month or two once again. This iteration allows you to adjust your budget or reduce spending.
Anyway, this has been the way I have set budgets and tested them. Once I have felt comfortable with it, I stopped tracking daily expenses. Too cumbersome for me to do long-term. But putting the time in up front to work on a budget has been helpful for me.
I should add to my prior post that I budget and record on a cash basis. I agree – Cash is King.