Should I be budgeting?
Imagine you had to attend an appointment.
You had to be at a certain place, at a certain time, carrying certain items.
If you are sensible then you’d plan your trip. You’d work out what time you needed to leave, how quickly you needed to travel and what you needed to take with you.
Now think about what would happen if you didn’t bother to plan. What is the likelihood of you arriving at the right place, at the right time holding the right things?
Well, budgeting is no different from planning that trip.
A budget is simply you deciding where you want to be, when you want to arrive and what you want to have when you get there.
Budgets aren’t just for companies
Most people think about companies budgeting and it is true that most well-run companies start with a budget or forecast.
But that doesn’t mean that individuals shouldn’t have a budget too and planning your financial future in this way can actually be quite fun and really liberating.
Having a household budget can make sure you don’t fall into debt and can also give you the tools to make sure that you can afford the things you really want.
Deciding what you want
The truth is that this has to be the very first port of call when you are thinking about a budget.
You have to decide what you want to achieve and when you want to achieve it before you can do any planning.
Let’s imagine you have decided that you want to retire at the age of 55 with a monthly pension of £2,500 (or it’s real value after inflation).
You know how long it is until you are 55 and so you can work backwards to understand how much money you need to put by every month to make this come true.
Budgeting doesn’t just have to be for long term goals like a pension.
You could do a plan that will get you debt-free, or that will give you the cash to buy a car or any number of different targets.
Does a budget need to be formal?
The simple answer is ‘no’. You can write your budget on the back of a cigarette packet if you want but of course, it is much more efficient to have it on a spreadsheet!
A budget can simply be a quick record of your income and expenses that show you exactly where your money is going.
You can then choose to save for something and then decide how quickly you want to achieve your target.
And then you have a choice, achieve your target quicker by cutting out excess expenditure or do it in the original time.
And that really is what budgeting is all about – giving yourself the choice.
Information is the key
A budget is an excellent way of shining a light on bad spending habits.
There can’t be many of us who haven’t developed behaviours that aren’t terribly positive but unless you know what’s going on then you don’t have a chance to correct it.
Think of a budget as being a set of financial scales.
If you have a naughty habit of eating a chocolate bar every hour then your scales will quickly show it. By the same token, a trip to the shops every day will soon show when you come to check your budget.
Today we have gone largely cashless as a society and so it is difficult to understand when you are spending money you don’t have.
Keeping a close eye on your budget gives you the information you need to understand when your spending is going awry.
Budgeting doesn’t have to be a chore
We’d say that everyone should have a budget of some sort or another.
It doesn’t have to be complicated and you don’t have to pore over it every single day but having a monthly routing where you simply check where you are will give you the ability to understand exactly how your finances are doing.
Need help producing a budget?
Our financial coaching service is designed to help people take control of their financial life.
Call us now and let’s talk it over.