Budget? What Budget?
April 2nd, 2008 by Poppy
I was visiting a good friend for coffee and comfort cake the other day and she was complaining about how she was short of cash AGAIN and had the car rego due next week. So I asked that awful question: ‘How’s your budget?’
‘Look in the tea pot.’ I did, and found there was a $10 note, a used train ticket and some bits of Lego. That was all she had until next Thursday, and today was Friday afternoon.
The credit cards were both maxed out, plus she had used up all the $500 emergency overdraft the bank offered last year when she overdrew the spendings account.
It seems to me that with all the easy credit and ATMs available today, that having a household budget is a thing of the past.
What I do know is that, after having spent many years without one, having a budget is the best thing to help me sleep at night, and not fret during the day about unpaid - and unpayable - bills.
There is a simple bit of math that happens when you have a budget. It helps you to spend less than you earn. Doesn’t that sound like a good thing?
Keeping track of where and when the money flows in and out of your life is vital. A household budget will help you to spot where the spending is not going to plan.
It will also keep you accountable for every dollar spent, and allow you to answer that most despairing of questions - ‘Where has all my money gone?’
A budget is not something to be used as a control device, to deprive or to punish. IT is there to give you freedom in the long term, and to avoid short term pain.
A budget will help to to make sure that what is spent is less than what is earned. Once you understand that idea, the rest is easy. When it’s up and running, you will wonder why you didn’t sort out a household budget years ago.
A budget will allow you to know exactly where your cash is going, and will help you to put an end to impulse spendings that fritter away your money. This way there will be more cash available for vacations and investments.
A budget will help you to stop depending on your credit card - and even the best of all situations - have you get rid of the credit card altogether.
A budget will also allow you to plan your debt repayments, so that you can pay more than just the minimum monthly balance each month. A budget will show you how to get out of debt.
The best thing about my household budget is that it helped to to grow up financially, and to be more responsible with my income, my spendings and my debt level.
It gave me back control of my finances, so that I was no longer a victim of money, but someone who has a grip on it all.
It also showed me that it might take just 10 minutes to make a purchase, but if it’s not in the budget and goes on the credit card, it takes 10 years to pay it back.
There are a few rules about the household budget.
Rule One: Track every cent spent. EVERY cent. Do this for one month so you know where all your money goes. Keep a note book and get a receipt for everything and note it all down, even the little stuff like that packet of crisps, or that chewing gum.
At the end of the month, work out how much that is a year = x 12. Then divide by 52 to work out how much you spend a week.
Here is my monthly spending:
$5,742.72 per month
multiply by 12 = $68,912.64
divide by 52 = $1,235.24
That includes everything - direct debits, mortgage, gym fees, entertainment, groceries, clothing, and pet food. Also I included a 1/12th cost of the yearly things, like car rego, car servicing, pet vaccinations, and a small monthly amount for a cheap, stay at home, 2 week vacation break.
Keep all receipts, especially for things like household bills. Don’t toss them out after you have paid them because you will never remember how much you paid last time. Keep them in a ring-binder in plastic sleeve, one sleeve for each provider.
Rule Two: spend less than you earn. This took me a long while to realise, but it is the key to a happy household budget.
Quit spending the cash just because the money is there in your account. Grow up and only buy those things that are in your household budget. Make sure each person has some personal spend money, to do with as they choose. No one is allowed to go to the spendings account and just help themselves. No is anyone allowed to go use the credit card without checking in on the budget.
Rule Three: get everyone involved. If you are the person who has control of the money in the household, make sure that everyone else knows what is going on. Don’t use this as a way to beat them over the head to get them to change some spending habits. Be gentle! Show the budget, show the money in and the money out and if they don’t balance out, talk about what each of you can do to make sure the spendings are less than the earnings.
Rule Four: check in regularly. Make sure that this is a well working budget. No point doing it once and never looking at it again. It is now the hardest working member of your household, the one who will help you the most - if you will work with it. The household budget is your new best friend, love it, play with it and bring it out into the open often.
To get really well organised, I highly recommend a software program from a mob called You Need a Budget. I use this program and it works really well for us, it is straight forward and easy to understand with clear rules and online support (the program is based on the 4 rules above).
Developing and nurturing your household budget will bring you a whole new world of happiness, and a way out of the cash flow woes.
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April 2nd, 2008 at 5:28 am
Great article Poppy!
Some good tips/points too.
With the availability of credit on the decline, it’s more important for people to look at drawing up a budget than ever. That easy credit that we’ve gotten used to just won’t be there as the backup plan it used to be.
No matter how people choose to create and maintain their budget, I agree with you, it is well worth doing.