Budgeting.  The best cure for a financial hangover

Christmas…it’s family time wrapped in a bow, the time of year when we’re called to take time out from work and other priorities, crawl out from under our rock and spend time re-connecting.

On the down side, retailer noise is at its peak with pressure to spend within a deadline.  Sales are an ideal way to plan Christmas shopping, but they create temptation to over-spend.

Rather than greeting the New Year with a resurgence of credit card fees that can leave us playing catch up for many months afterwards, now is the ideal time to re-commit…to a budget!

You may remember giving in to momentary temptation and buying something you didn’t need – or really like, only to return home, remove the price tag and gulp.  Instant guilt pang.

In my view, having a realistic budget helps to avoid this.  Like dieting, rather than a sudden crackdown on spending, making small and regular cut-backs is the key to success.   Two cups of coffee a day without sugar potentially saves your body from 700 spoonfuls of sugar over a year. It’s those incremental changes over time that make a difference.

Like me, you may have made cut-backs due to a part-time income as you prepare your kids for school.   Rather than being side-lined by the mantra ‘We can’t afford it’, this year, I knuckled down to prepare a family budget to see where the boundaries lay.  Here are a few of my experiences in setting a budget and how it allowed me to actually enjoy my purchases.

What is a budget?

Put simply, a budget represents all personal income (by week or month).  Offset against this are financial commitments. Firstly, fixed expenses such as mortgage repayments (or rent), other debt repayments and living expenses (e.g. food, phone, electricity, cars, water, rates, insurance, school or private kindy/day-care fees). 

Once fixed expenses are documented, there are variable living expenses (e.g. gifts, kids’ parties, haircuts, repairs & maintenance, doctor, dentist, clothing, kids’ hobbies). 

A realistic budget may also include money for entertainment, weekly take-aways, self-cares, donations and, for the handyman at home, a ‘general’ category for those ad-hoc jobs that require an urgent trip to Bunnings!

Why have a budget?

A budget a picture of financial incomings and outgoings.  Having this information in current, summarised form is the roadmap for retirement planning.

Our budget tells me how much is left over after meeting our family’s fixed expenses.  It’s helped me to plan the kids’ hobbies each term, weigh up the day-care versus Kindy decision, even manage the kids’ expectations around birthday parties at Butterfly Creek and Rainbows End!

Having taken heed of it, the budget has rewarded me with robust justification of the odd shopping spree!  Avoiding the label of ‘Miss Frugal’, I’ve been guilty of ‘frittering $20 here and there, only to realise that these extra purchases mounted to a considerable annual sum.  Setting the limits in black and white has required me to think carefully and plan what I buy.  Living (mostly) within rations makes me feel more noble than having a Mastercard Gold!

Make your budget work for you

Following are a few of my own financial faux pas that I have learnt from.

  1. A budget isn’t an automatic ‘license to spend’, but permission to spend up to the prescribed amount (this concept has taken me a while to grasp)! For example, we have a weekly budget for ‘Kids entertainment’, however if I spend all of it during term time, it leaves no wriggle room for over-spending with both kids at home during the school holidays.
  2. It’s tempting to ‘tick up’ personal spending, e.g. a flurry of spending on clothes one month to take advantage of a ‘flash sale’. This makes it difficult to keep the discipline of spending nothing for the duration over-committed time-period, risking derailing the budget.
  3. Revise and revise. Costs and income change, so make a habit of reviewing the budget regularly to keep it realistic.
  4. Keep a log book handy (bag or car). It’s easy to forget purchases made earlier in the month.  Short of going onto internet banking and wading through records, a simple option is to keep a written log book of discretionary purchases (e.g. clothing) with dates and amounts for easy reference.
  5. Every few months, compare the bank balance month-on-month (the day pay/s go through). Investigate over-spending. Was there a ‘big month’ with disproportionate fixed expenses, e.g. a quarterly rates instalment or annual insurance premium?  Trawl internet banking and do a rough tally of spending against the budget categories.  Areas to look for might include top-up grocery shops, impromptu treats for the kids or visits to The Warehouse!
  6. As a budget provides a savings forecast, it’s useful to create a loose plan of where you’ll land at retirement age. Are you on-track to having repaid the mortgage (considering the mortgage term)? What might your savings be? Do you need to save more and where could you cut back today? Although the facts are bound to change, it’s a good grounding exercise to keep one eye on the end goal.

Mindful spending

Having a budget is one thing, sticking to it is quite another.  When writing a budget, I think it’s important to start with a clear picture of why you’re budgeting.  Yes, perhaps the biggest hurdle of all is deciding what you really want!  A first home, dream or beach home, renovation, a car or simply to enjoy an early retirement.  The more personal and tailored the goals, the easier it feels to forgo things now, e.g. a savings goal might be to run the New York marathon within the decade.  Although an earlier retirement would be nice, it may not be enough to curb spending for instant gratification!

Spending money is a rush!  Although by saving, you’re forgoing some things now, your goal needs to be strong enough so that although you said no to buying ‘x’, the amount you’ve saved brings you that much closer to your goal.

Regularly reconnecting yourself to what’s important to you will help you to live within your budget, remembering that little and often is more achievable than large cut-backs.

Let’s raise a toast to great financial (and physical) health.  With a budget to set spending boundaries and the big picture, small changes made little and often and will enable you to enjoy bigger rewards in future.

Merry Christmas and may 2018 land you in great shape.

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