Getting Started – Part Three A – How To Create A Budget That Actually Works
Alright, here’s the deal with budgeting. There are many different systems for creating and writing a budget, from extremely high level (pay your bills first, chuck some in a savings account and blow the rest as you see fit) to incredibly detailed (write down every little thing including the $2 you flipped a homeless guy and the 20c you found on the street).
I’ll be perfectly honest, I subscribe to a system down the more detailed end of the spectrum. This is for the same reason recovering alcoholics don’t have ‘just one drink’ with their workmates on a Friday evening (or any other time for that matter). Put simply, if you can’t manage it you need to be strict with yourself until you can. Over time, as you work out a system that works for you, there’s the opportunity to become less detailed and more high level. If you’re in a place though where you feel like you don’t have enough money, you’re in a serious amount of debt or living payday to payday… then it’s time you started being strict with yourself.
Why Most People Fail
I talk to a lot of people about budgeting… between that and my own experience, I can tell you that these are the biggest reasons people mess up their budgets. I’m telling you now so you can understand them and be aware of them when starting out on your own journey to do this thing right:
- Lack of interest, discipline and motivation. Whilst Tim Ferris / Ramit Sethi have a point(not nearly enough people automate their savings / bill payments) the idea that putting money in some savings account somewhere by direct debit each payday is going to magically turn you into a savings guru is complete well… nonsense. Anyone who’s been there will tell you that this doesn’t stop you from overspending on your credit card or prevent you from pulling the money OUT of your savings account a week before pay day because you can’t afford your groceries.
- Subscribing to the school of “set and forget”. This was possibly my biggest downfall – since the day I moved out of home I’ve “budgeted” but it’s only in the last two years I’ve managed to do it with success. People who ’set and forget’ write up a budget saying how much they’re going to spend on each category (eg. groceries, bills, clothes, etc.) then save it somewhere and never refer to it again until three months later when they wonder why they’re still running out of cash a week before payday and their credit card bill for last month is so huge.
- Not getting stakeholders involved. If you live with anyone, even your cat… you have stakeholders. These people *need* to know that you’re writing a budget because the last thing you want is your spouse racking up purchases on the credit card or your flatmate buying takeaway and telling you you’re in for half.
- The ‘I’m Depriving Myself’ mindset. I’ve said it before and I’ll say it again. Being on a budget, saving for things and preventing yourself from accumulating consumer debt is NOT depriving yourself. Failing to optimise the use of your money by blowing it in an unorchestrated fashion most certainly IS depriving yourself – it’s depriving you of being able to do the stuff you want, meet the goals you have, and preventing you from achieving financial freedom.
- Going too ‘gung ho’ and burning out too quickly. Been there, done that. This doesn’t work for money the same way it doesn’t work for diets or fitness kicks.
- It didn’t work last month so I give up. This is tied to the first item in this list, and I did it far too many times to count. Guess what… the first month or two of this new budget I’m going to show you how to write won’t be perfect either. It might take us a few months, but you’re going to end up with a fully workable budget that you can stick to.
One Simple Step To Get You On The Way To A Great Budget
To prevent items 1, 2, 5 and 6 on the above list, I’m not going to write you out steps for creating a full budget right here. That will come. The reason this post is marked as 3a is because you need to now go away and do some legwork so you’ve got all the information necessary to create a kick-ass budget.
The single step involved in this part of writing a budget is to get a shoebox or other container of some sort and keep every single receipt you get for the next month. This INCLUDES: regular receipts for things like groceries, bills (the exception being credit card bills) and ATM receipts.
In part 3b of this series I’ll show you how to create a budget that will get you on the path to where you want to be.
If you’ve got any questions, please feel free to email or tweet me!
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
