According to a study by Stephan Siegel, assistant professor at the University of Washington, genetics play a huge part in your attitude towards money – you’re either a natural spender or a natural saver.
Therefore (you guessed it), budgeting does not come easily to the spender. But the good thing is, spenders can override their natural inclinations by creating habits, like Habit #3 – Making a Plan for Your Money.
It’s important for spenders to remember that having a budget does not mean: “I can’t”. What it really means is: “I can, but I have to plan for it.”
Yes, you can still go have that 2-week holiday in Bali. You can still go out for a fancy dinner with your friends. Just know when those events are going to happen and plan for them in your budget. Or, if you want a bit of room to be more spontaneous, allow yourself ‘quotas’ and factor them in; for example, one fancy dinner a month.
By having a budget, you can set aside a bit of extra money each month for more extravagant purchases, while still saving the same amount of money you have planned to put away each month.
In fact, as Rachel Cruze discovered, having a budget actually feels more liberating than spending impulsively because you feel like you have control over your money. As soon as you lose track of where your money is going, you’ve lost your freedom because your money is suddenly controlling you.
Here are the three main steps to creating a budget that works for you — and will last:
Step 1: Create accountability
Whether it’s with your business or your partner, say “okay, we’re going to spend $X each month.”
If you’re single, find someone in your life who is good with money. Your sister, a friend, or an accountant. Now here’s the scary part: hand over your bank statements for the past three months. Get your trusted person to look through and be completely honest with you. Did you really need to spend that much on groceries for one person? How many times do you really need to eat at that restaurant? Sometimes, all it takes is a bit of outside perspective!
Step 2: Set the budget
In a budget, there are important things, and then there are less important things.
First, write down what you need to spend each month: rent or mortgage repayments, utilities, food, transportation, etc. Then, give yourself a bit extra for the things you love doing that cost money. Allow yourself a movie night once every couple of weeks, a dinner out, $200 per month set aside for that trip to Bali next year. Whatever it is, plan for it now.
The difference between a budget and your income is the amount you are going to save. Write down this figure in your diary. Stick it on the fridge. Whatever you do, don’t forget that golden figure.
Step 3: Implement the budget
The actual action of putting away savings money isn’t that hard — you get paid, you put the ‘golden figure’ into your savings account. You did it! You’ve achieved your goal!
But the hard part is yet to come. Now, you’ve actually got to follow your budget for the rest of the month.
The reality is, the first month is probably going to be a complete disaster. You might get to the final week and have $10 left for 7 days. (That’ll feel like a throwback to uni days for some…)
The second month will be a bit easier, but still difficult.
By the third month, you should have ironed things out. By this time, you’ve tweaked your grocery lists so you’re not going over budget. You’re making much more conscious decisions about the small transactions – for example, you realized you can’t have that $4 coffee every morning before work so you’re getting up 5 minutes earlier to brew a pot of plunger coffee.
Need help setting your budget? Or want an extra pair of eyes to look over your statements?
We can help you with your financial planning, whether it’s personal or for your business. Contact us to find out your next steps.