What’s the best kind of budget to save money?
Getting a handle on your expenses is at the heart of managing your money well, so that’s a fundamental first step that you need to take, no matter what money management program you decide on.
Barely anyone learns how to manage their money, from either their parents or at school. And even when you do, it’s always a basic two dimensional budget which doesn’t tell you anything much or actually help you to manage your money.
A budget will tell you that it’s possible to spend less than you earn, but it can’t tell you HOW.
And without that crucial information it’s pretty hard to make your finances work.
I know we certainly made a lot of mistakes on our financial journey to where we are now.
Check out this quick video where I talk you through our journey and hopefully you can learn from it and not make the same mistakes we made. I’ve never shared this whole story before – I hope you get good value from i
In this video I also also talk about…
How to make sure all your bills are paid on time EVERY TIME and avoid those savings-sucking late fees.
I really hope you find it helpful and get the light-bulb moments that I did when these concepts were first presented to me.
I know it seems like heresy to say that budgets don’t work, especially when all the finance gurus are telling you to do one, but I’ve got to be honest and say that budgets never worked for me, and don’t seem to work for most people I meet.
In fact, budget has become a bit of a dirty word for households all over. When most people think of doing a budget, they think of restriction and penny pinching, and all their previous failed attempts at trying one.
I remember way back when we used to keep a budget journal and we’d write down every single expense and then compare it to our income to see how we were faring. But it was such a pain in the butt because we were self-employed and we could never actually predict what our income was going to be. And then there was always some unpredictable expense that I’d forgotten. Even when they were really kind of obvious every day expenses (like our car breaking down, or needing to replace our fridge – that’s life right? but we never seemed to factor that stuff in, which is pretty dumb really, I admit)
I remember I made my husband carry around this little notebook for a whole year and write down every single thing he spent money on. And he did it, but he HATED doing it, and would roll his eyes every time I mentioned it.
Why budgets don’t work, and what to do if you need help saving money.
The problem with budgets is that they only show you that it’s possible to spend less than you earn. They don’t show you HOW and that’s a major achilles heel for the majority of people.
The reason is budgets are very two dimensional. They show income and expenses usually on a monthly or annual basis. But they don’t factor in a really crucial piece of the puzzle – and that’s TIME.
So your budget might tell you that your annual income will cover your expenses, but what about those unexpected expenses that you haven’t accounted for? And what happens when a whole heap of major bills fall due at the same time each year or month and completely overwhelms your salary for that month? And now you’re back chasing your tail – putting things on credit and paying high interest rates to keep afloat.
How do you plan for unpredictable expenses in your budget?
And then what happens with the unexpected expenses like the fridge breaking down, (which is going to happen sometime in the next 10 years). Most people have not factored in anywhere near this level of detail into their budgets. And that’s where they get derailed. Because all of a sudden a big expense hits them out of the blue, and they either have to eat into savings, or use credit.
What’s the most efficient way of budgeting?
Some people I speak to say “Well, I’ve got it all sorted. I pay a percentage of every bill every month so that by the time the due date comes the bills are all paid up” but is that really the most efficient use of your money?
While, sure your bills might get paid on time, paying bills way before they’re actually due means that your money is not being used in the most efficient way it could be. Your precious, hard-earned money could be put to use to buy income- generating investments, or accruing you interest in a high interest-bearing account. When you pay bills early like that you’re actually short-changing yourself.
And paying your regular bills early doesn’t help at all with making sure you have money available for unpredictable expenses.
So how DO you make sure all your bills are paid on time, everytime?
(Not too early, but also not late so you can avoid late fees)
Well, you need a budget planning system (that will factor in all 6 types of expenses (that I spoke about in my last email) but show you exactly when they need to be paid over the course of a year to prevent your account from going into shortfall.
So all your predictable expenses will have an exact date when they’re due. Everything from rent to netflix to birthdays.
And then for all the unpredictable expenses you need to work out what the annual cost is for each of these things, and then divide either by 12 months or 26 weeks, and then create an automatic periodic transfer into a special savings accounts for that money to accrue over time so that when you need it you’ll have it for all of those things.
It’s not difficult to work out your total expenses and all their due dates. You can do that using the free expenses worksheet I’ve given you. But I’ll be honest and say that the next bit is a bit tricky.
How do you work out how much money you need to have in your account on any given day to make sure that all your living costs will be covered?
You could try and do all the maths, put it all into a fancy excel spreadsheet but it still may not be able to tell you exactly what your magic number for your account balance needs to be every day of the year. That’s why I love our Spending Planner – it crunches all those numbers for me and tells me the most crucial information I need to be able to make day-to-day decisions: What does my account balance need to be today?
That information helps me decide whether or not I have surplus money to spend or not – Can I buy that dress I’ve got my eye on today? Can we afford to go take the kids to a theme park right now? Or can I afford to scoot some money over to our investment portfolio so that we can build our wealth?
And it also tells me exactly when I need to suck my belt in and try and raise some more money. So it can prevent potential disasters before they happen.
And that totally takes the stress and worry out of managing your money. You’ve got a road map to follow, and as long as you follow the roadmap you’ll get to your destination.
No more late fees, no more uncertainty about money. What a weight off.
In my next few videos I’m going to share with you how to power-save money in certain key areas, like food and insurances, so that you can reach your financial goals much faster. If you want to learn how to save for a home, or saving for an amazing overseas holiday, then the key is coming up with the cash, and finding dollars that you didn’t even know you had. Stay tuned, and I’m going to show you how to totally smash your savings out of the ballpark.
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