Why do a personal budget

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

From 1 July 2021, there are significant changes to superannuationtaxation, social security, Medicare and many other systems.

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

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, we know that 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 really doing. I started seeing just how much I was really 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 as I didn’t have enough money.”  –  Andre, 28, Bunbury.

“I now have made changes on 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, and this has saved me a lot of money.”  –   Lisbet, 40, Adelaide.

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

“The first time I took a good look 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 getting in the way of 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 it adds a whole new layer to how we interact with money.

Budgeting is a high-level mindful money practice – it’s 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 provide that motivation, but you might not want to reach some kind of financial disaster to start budgeting.

It’s worth having a deeper look at the question of ‘why budget’? To help increase our level of 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, without a budget; you are more likely to over/impulse spend. You’re trying your best to make good choices, with a rough idea of how much you can spend. But without actual financial boundaries, it’s easy – and extremely common – to spend more than we meant to.

It feels like a kind of freedom to splurge, 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. But when you sit down and discover you have taken 19 cab trips in a month or bought takeaway dinners 17 times, the cost adds up, and the areas you can cut costs become apparent.

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

2. Do you want financial goals

It seems easy to set goals; 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 – or everyone would be kicking financial goals all the time. 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 the benefits of budgeting help 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 of the key elements to finding financial contentment is to stop comparing to others. Stop the practice of wanting things that 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. Keep your focus on how you are doing, not how are they doing. No budget doesn’t have a column for ‘keeping up with the Joneses’.

Going back to your budget, checking, re-checking, confirming, adjusting keeps you focused on your goals, your life. It is 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 there is too much going on all at once.

Being overwhelmed leads to bad decisions with money, impulse buying, bad investments or shopping to escape reality and somehow find comfort. As a short-term measure, it can appear to work, but it’s disastrous for your finances as a habit.

Routines are good for preventing overwhelming feelings, and the best financial practice of all is budgeting. Being diligent daily with money 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 also absolutely vital to help you get out of debt.

Sometimes a budget will show that you need extra help, or even extra 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 run your finances on the run, without a budget, without a plan is 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 as a way of building 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 the question again: do you want savings?

We are not talking about the kind of savings where you get together enough money for a holiday, or 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 kind of 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 disorganisation, impulsive and out-of-control money habits that weaken your relationship and make you feel overwhelmed will lead to you falling behind in so many areas of life.

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

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

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

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

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