Art Of The Budget
The Art Of The Budget - If this looks hard to you, remember every time you look at it, every time you come back and review what you’re doing, you’re actually raising the bar and reinforcing new behaviours.
Why I like budgeting
I like budgeting because it’s a TOOL FOR CREATING A COMPELLING FUTURE — like an exercise plan, or like the other “tools” that Adrienne is setting out in these emails.
I think of a budget as a kind of financial puzzle, and I get a sense of achievement from seeing people solve the puzzle and achieve what they want.
I'm also aware that it’s one of those things in life that, for a lot of people, is a bit difficult. It's surrounded by a lot of emotion, and success is dependent on habits and focus, so it's not an easy thing. A bit like living up to your exercise plan!
It's something that you need to look at carefully — and what it will mean, realistically, to commit to over time. But, with that focus, I'm sure you can achieve it. Anyway, this is my approach.
#1. Start with an honest outline of where you are now
You’ve got to start with a very clear idea of where you're at, which means taking time to sit down and list all the places you spend AND make money. Review all the transactions in your bank accounts, and also, as best you can, what you pay for with cash.
Be honest and record ALL your findings! If you buy a cup of coffee every day write it down. If you’ve subscribed to everything under the sun write it down. Why? Because all that detailed information will make your choices clear. If you think, “I don't really need those coffees every day”, suddenly you could save $4 x 7, which equals $28. What could you spend your $28 on? Gathering all that detailed information will give you something solid to solve the budgeting puzzle.
#2. Work out what you can tolerate
After you’ve got a clear sense of where you’re at, take a careful look at that list again, maybe rewrite it nice and clearly, or input it to your budgeting tool if you’re using one.
Now start taking out everything that doesn't have meaning for you.
Are there subscriptions you’ve simply forgotten to cancel? Maybe those coffees are unimportant. Whatever it might be take it out. You’ll probably need to be assertive about what you take out, but you cannot take out EVERYTHING. This is about trying to find a baseline for what you can tolerate, because this isn’t about punishing yourself, it’s about freeing yourself — to make choices, halve your bills or whatever.
I don't know about you, but sometimes my baseline doesn't fill me with excitement. I need to remind myself that it’s not about doing it tough or doing without luxuries, it’s about eliminating waste and creating new opportunities.
#3. What is your “compelling future”?
Step three means taking your income, minus your baseline spending (having eliminated the “waste”), and starting to think about what you want to achieve.
This is the fun part, and why you’re doing this, remember!
- Maybe you want to save for a vacation.
- Maybe you want to reduce your debt.
- Maybe you want to save the deposit on a house — or be confident you can repay the mortgage!
- How much do you need each month to afford those things? — or to eliminate your credit card debt within 12 months?
- Where are there opportunities to earn more money or share expenses? e.g. Pay Rise, New Job, Side Hustle, Flat mate.
Awesome — now you have an outline of your budget from three different viewpoints
Now you can look at your financial situation three different ways...
- What you do now.
- What you can tolerate!
- Your compelling future — or one idea of it anyway!
Now you’ve got choices to start thinking about.
Do you have financial security right now? if not how can you put that right? Is your “compelling future” realistic? If not how can you change that? Could you cut back a bit more? Could you increase the income side of your budget? Might it take longer than you hoped to achieve your goals?
This is the point where YOU get to solve YOUR puzzle, and only you can do that.
It’s time to be prepared
To me this moment in time is one to be as PREPARED and as CLEAR as you can be. It’s time to be CAUTIOUS. To think about what MIGHT happen — not expecting it to happen ... trying to stay optimistic ... even to dream — but doing so from a sound basis of understanding exactly what might happen. If you can get rid of expenses, get rid of them. And if Plan B is required, what will it be?
Are you doing this with someone else?
So you've thought about your plan, but what if your budget is for a family or a business? You’ll need to get everybody on board. Ideally this will be a consultative process, with everyone involved from the start, in terms of what they can tolerate, and what their goals are!
But you may need to show leadership and explain to everyone your conclusions and how you came to that place. Anything that gets their buy-in, that meets their needs, helps you achieve your goals. Everybody needs to commit to what you're doing. But it’s also very likely they’ll make their own contributions to the cause. Working together is by far the best approach.
It's not just about the numbers, it’s about how you behave
This is where the second part of budgeting comes on. It's not just a plan. It's not just about writing down what you hope to achieve. It's about being honest — about developing the positive habits that will help achieve your goals, and understanding the negative habits that will distract. It's really important to be realistic, and to forgive yourself for your slip-ups. Just commit to the plan, day by day bringing yourself back to the goals you set — and most importantly, remembering YOU CAN’T SPEND THE SAME MONEY TWICE. If you find yourself wanting to do something that’s not budgeted, review it against the plan, and put it off a few days. Normally you’ll find the desire will fade.
Be determined, but be gentle with yourself
Remember that, even if this stuff looks hard and foreign to you, every time you look at it, every time you come back and review what you’re doing, you’re actually raising the bar and reinforcing these new behaviours.
This is what we did
At one point Sonya and I were in a very difficult financial situation. We decided that every Thursday evening we would sit down and review what we had done over the previous week, and decide what was coming up in the next. We made a weekly commitment to each other. We’d look at our bank statements and, if we’d slipped up, explain to each other, to hold ourselves accountable. To be honest it was really hard in the beginning. There were arguments, and “I want this” and “I don't want to do that” differences of opinion. But we were committed to doing it together. We were committed to good behaviours, to honouring each other through the process, and to creating that compelling future. What we found over time was that a lot of our early language was looking backwards at bad behaviours and past failures, but by dedicating ourselves to what we wanted we started looking forward to a future that we both wanted and believed in. For me, that's always been the most exciting.
What makes it all worthwhile
Creating a compelling future is about learning from the past, but more importantly, picking that place in the future that you want get to. Because that's what motivates you to do this and be successful. Anyway. Good luck. Hope this helps. Adrienne, thank you for the opportunity to do this.
Love to you all. And good luck.