Why do a personal budget

Why do a personal budget.

We have started a new financial year. Like in previous financial years, new rules come into effect.

Significant changes will be made to superannuation, taxation, social security, Medicare, and many other systems from 1 July 2021.

These changes impact how we are personally taxed, our superannuation, the indexation of social security, and different medical benefits.

All of these changes hit our bottom line.

Do we receive more income or less? Will we be paying more expenses?

Understanding these changes is essential to managing your money.

The practical, ongoing action you can take to make use of this knowledge is budgeting. It’s an indispensable component for managing your money.

So why budget?

Instinctively, budgeting allows us to manage money wisely, avoid financial stress, and be in control.

The simple answer is that it’s a habit that is always helpful to our financial situation.

Here are some first-person perspectives on what budgeting did for people:

“I had never known what my spending was doing. I started seeing just how much I was spending on my lifestyle, and it was a sobering experience.

I also wanted to save for an overseas holiday but couldn’t make it happen because I didn’t have enough money.”—Andre, 28, Bunbury.

“I have now made changes to how much I spend on eating out and catching Ubers. I have started to SAVE!!”—Melissa, 29, Brisbane.

“It was great to feel in control of where I spend my money now and how much I will have left.”  –  Phil, 46, Sydney.

“I didn’t realise how much credit card interest I was paying.  I now manage my spending to avoid paying credit card interest, which has saved me a lot of money.”  –   Lisbet, 40, Adelaide.

“Even though budgeting was daunting at first, I started to be wiser around what I spend.”  –  Bakthi, 38, Melbourne.

“The first time I looked at my payslip and realised how much money was going into superannuation, I could see where my money was going. It felt empowering.”  –  Sunil, 41, Kingaroy.

But there’s a hitch.

Many of us still have trouble following through and sticking to budgets, which means something is keeping us from committing to the budgeting process.

It’s important to note that budgeting is not easy. It is a commitment to a new way of thinking about money and adds a whole new layer to how we interact with money.

Budgeting is a high-level mindful money practice – paying attention to what we earn, what we spend, what we need and our attempts to change for the better.

Succeeding means not giving up in the pursuit of this new life skill.

The proper motivation is needed to undertake this skill of being constantly curious about your money.

Desperation can motivate you, but you might not want to reach some financial disaster to start budgeting.

It’s worth having a deeper look at the question of ‘why budget’ to increase our motivation and commitment to building budgeting skills.

We’ve broken down the main reasons to help you understand.

Hopefully, this will help you feel more engaged and better able to commit to building this new life skill.

1. Do you want better control of your spending

Let’s be honest: you are more likely to over/impulse spend without a budget. You’re trying your best to make good choices with a rough idea of how much you can spend.

Without actual financial boundaries, spending more than we meant to is easy – and extremely common.

It feels like a kind of freedom to splurge and spend without worrying—buying a shiny new pair of shoes, that next-level smartphone, taking a cab over a bus, even just getting an extra dish when ordering takeaways.

We don’t want to see these choices as actually creating our financial reality.

When you discover you have taken 19 cab trips in a month or bought takeaway dinners 17 times, the cost adds up, and the areas where you can cut costs become apparent.

In other words, budgeting makes us aware of unconscious and unhelpful money choices and gives us control over these self-defeating behaviours.

2. Do you want financial goals

Setting goals seems easy. It’s a creative exercise that seems responsible and feels good, too. You settle on a goal and work out a timeline.

But achieving a goal is difficult—otherwise, everyone would always be kicking financial goals. And we are not doing that.

Budgeting is an essential part of achieving any personal financial goal. You’ll find it challenging to commit to any financial goals without budgeting.

A budget allows you to reverse engineer your goals via a clearly defined process. It keeps you on track, day in, day out, week in, week out, month by month. Each budgeting action is a recommitment to your goals.

Over time, budgeting helps you achieve financial goals.

3. Do you want financial habits that help your relationship

Without question, whether you are married or de-facto, budgeting helps long-term relationships.

Money is so essential that relationships grow with shared financial goals achieved together or fall apart where people in a relationship feel financially unsafe.

Relationships flourish where people feel safe on many levels, especially when they can see a reasonably good future. Budgeting helps people see what the future might look like, and crucially, it helps the relationship when completed together – giving that rewarding sense of teamwork.

Budgeting is also a tremendous boundary-setting exercise and practice for couples.

It is also well known that money problems are a significant source of fighting, arguing and even relationship breakdown.

If you want to end the conflict in a relationship, you could do worse than having shared financial goals – and as we’ve shown, budgeting is a crucial part of that.

4. Do you want to feel more peace and contentment about money

It’s an odd thing but true. Feeling financially secure and content reduces the desire to spend.

Reducing unnecessary spending then helps you to start enjoying your money.

One key element to finding financial contentment is to stop comparing to others. Stop the practice of wanting things you see others with, whether they are showing off a gadget or a new car on Facebook or at work.

Don’t compare yourself to anyone but yourself. Focus on how you are doing, not how others are doing. No budget has a column for ‘keeping up with the Joneses.’

Returning to your budget, checking, re-checking, confirming, and adjusting keeps you focused on your goals and life.

It is an excellent financial but also an emotional and mental self-care practice.

Ironically, people who focus on improving themselves and not bettering others end up being admired by others.

5. Do you want to end the feeling of being overwhelmed by money

Nobody enjoys feeling overwhelmed. We all know our decision-making can suffer when too much is going on all at once.

Being overwhelmed leads to bad money decisions, impulse buying, bad investments, and shopping to escape reality and somehow find comfort.

As a short-term measure, this can appear to work, but it’s disastrous for your finances as a habit.

Routines are good for preventing overwhelming feelings, and budgeting is the best financial practice.

Being diligent about money daily means you won’t overspend as a habit and will be less likely to experience shock and become overwhelmed when unexpected expenses occur.

6. Do you want to avoid debt

Being stuck in debt feels depressing, like working to repay others, which can build a negative belief that you’ll never get ahead.

Budgeting will stop you from living beyond your means, so options like quick credit to buy must-haves disappear. In this way, budgeting will prevent you from getting into crippling debt.

But because budgeting is a life skill about carefully planning your finances, it is vital to help you get out of debt.

Sometimes, a budget will show that you need extra help or income to service your spending and repayments. That can be an unpleasant truth, but being in reality with money is essential and the first step to improving your finances.

7. Do you want to be better organised

Being disorganised with money is stressful.

Trying to manage your finances on the run without a budget or a plan is like flying by the seat of your pants. If money is tight, it’s hazardous to be disorganised.

It’s not just repayments, reminders and other bills that can slip through the cracks; you may miss out on cost-savings and good deals because you are not paying attention to your finances or, worse, incur late fees and interest.

Getting organised is a bigger job than staying organised.

8. Do you want to be ready for unexpected expenses and emergencies

Unexpected costs are unpleasant facts of life; hopefully, they don’t come along too often.

The best way to prepare for unwanted financial nasties is to have a buffer.

Many sources recommend building up and maintaining three to six months of ordinary living expenses in case of unexpected expenses – which is more than many people have.

Using gambling and lotteries to build a buffer is a big no-no. People who gamble and win tend to spend what they fluke: easy come, easy go.

But equally, hard-won savings tend to be something we fight to keep; we are proud of them, so we protect them and nurse their growth.

Effective, committed budgeting will lead to savings that are likely to be better than you have ever maintained – and good savings are the best buffer against emergency costs and unexpected expenses.

To start a budget, live on a budget, keep living on a budget – and that buffer will grow. As it grows, so will your peace of mind. 

9. Do you want to save some money

We touched on this point about emergencies, but it’s worth asking again whether you want savings.

We are not talking about the kind of savings where you get enough money together for a holiday, a motorbike, or even a wedding. That is just delayed spending – and there’s nothing wrong with that.

If those things improve your life, then do it and enjoy the fruits.

But it’s not the saving that builds and grows and increases steadily over time – and keeps rising.

Who doesn’t want those kinds of savings?

Yes, that can seem impossible. But it’s not impossible, though it does take discipline and a plan. That plan is a budget, and that discipline is sticking to your budget.

Budgeting allows us to save for the things we want and to grow a separate amount that will enable us to reach long-term life goals.

10. Do you want to get ahead

Think about the question regarding a choice: what would you prefer, getting ahead or lagging?

It seems obvious, but disorganization, impulsivity, and out-of-control money habits that weaken relationships and make people feel overwhelmed can lead to falling behind in many areas of life.

Living week-to-week is stressful and doesn’t help you plan for the future.

Budgeting is a consistent answer to ending that feeling of falling behind in life. It is the action that allows you to ‘get ahead’. Commencing a budget and building the budgeting skill with consistent attention and action will change everything.

Budgeting is one of the most apparent, empowering, and impactful ways to live mindfully, and we can think of it – and everyone can do it.

Next week, we provide a practical guide to learn how to budget.

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